July 8, 2009 / 2:00 PM / 10 years ago

UPDATE 2-Dry hole in offshore play shows Brazil oil risks

* Oil companies fail to find oil off Brazil’s coast

* Highlights exploration risk of sub-salt fields (Recasts; adds bullet points, analyst quote, background)

By Brian Ellsworth

RIO DE JANEIRO, July 8 (Reuters) - A consortium of companies failed to find oil in deep waters off Brazil’s coast, officials said on Wednesday, a sign the South American nation’s push to become an energy exporter is still fraught with risks.

The news came a day after state-run Petrobras said it suspended production at a pilot well in the massive Tupi field, highlighting the challenges of pumping crude through a thick layer of salt miles below the ocean’s surface.

Such setbacks may prove a blow to government assertions that Brazil’s sub-salt fields have no exploration risk — a key argument for a pending legal overhaul that would change terms for oil companies investing in new offshore projects.

“This is not a deal-killer for the sub-salt blocks, but it is a wake-up call that there are plenty of technical challenges — this is not a piece of cake,” said Francois Moreau, a former oil executive and independent analyst based in Rio de Janeiro.

A consortium including Exxon Mobil (XOM.N), Hess Corp (HES.N) and Petrobras (PBR.N)(PETR4.SA) did not report an oil find in the Guarani well of BM-S-22 bloc after drilling there, according to statements by Hess and Exxon Mobil.

Brazilian law requires companies to promptly inform the National Petroleum Agency if they find oil while drilling exploration wells under concession.

A Deutsche Bank report released on Wednesday put the total cost of the well at $140 million.

Exxon Mobil, operator of the project, said in an e-mailed statement: “We are evaluating the results of the BM-S-22 drilling program in order to plan a location of a third well to help us further evaluate the BM-S-22 block.”

On Monday, Petrobras said it had to halt production at a well in the Tupi field, which contains at least 5 billion barrels of oil, because of an equipment problem. It did not say when the well would be functioning again.

The incidents demonstrate two key risks of developing sub-salt fields — the chance oil reserves may be less than expected and the difficulty of producing under deep water at extreme temperatures and high pressures.

The 2007 Tupi discovery put Brazil on the map as a possible energy player, but Petrobras must demonstrate it can overcome technical and economic obstacles to ultra-deep water production, which is a relatively new frontier for the oil industry.

Petrobras is the principal operator of the sub-salt fields, some of which are being developed in partnership with other companies, including Britain’s BG Group BG.L and Portugal’s Galp Energia (GALP.LS).

The government of President Luiz Inacio Lula da Silva wants to change the current system of concessions to a production-sharing model in which the state owns a portion of the oil produced.

Critics say the effort is an ideological crusade that has stalled new exploration investments needed to confirm reserves and will not bring in new revenues for Brazil

No official proposal has been released, though it is scheduled to be presented to Congress in the coming weeks. (Editing by Stuart Grudgings and Walter Bagley)

0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below