Sept. 23 (Bloomberg) -- Total SA, Europe’s third-largest oil producer, is studying expansion in Brazil as part of a plan to reverse falling output by developing new projects.

“Brazil definitely would be an interesting target,” Chief Executive Officer Christophe de Margerie said yesterday in New York after meeting Petroleo Brasileiro SA CEO Jose Sergio Gabrielli last week in Paris. “We think we can help Petrobras to develop huge resources that they have in front of them.”

Total’s second-quarter output fell to a nine-year low as the global recession and OPEC output limits offset gains from new projects in Nigeria and the Gulf of Mexico. International oil companies including Royal Dutch Shell Plc and Galp Energia SGPS SA are investing in Brazil’s deep-sea pre-salt region, whose Tupi field is the Americas’ largest oil find since 1976.

Teaming up with state-controlled Petrobras would be in keeping with Total’s strategy to develop ties with national oil companies in countries with large hydrocarbon reserves, de Margerie said in an interview. “This is what we’ve been doing with Gazprom to develop the Shtokman field in the Barents Sea,” he said.

The Arctic Shtokman natural-gas field is a venture between Russia’s OAO Gazprom, Norway’s StatoilHydro ASA and Total, and has reserves equal to more than the world’s current annual gas consumption. Total is also a partner of Petrobras at exploration blocks in Bolivia, Nigeria and Angola, and is in talks on a project in Venezuela with that country’s state oil company.

Development Challenge

Petrobras is facing a “tremendous challenge” to develop its deep offshore oil fields, de Margerie said. “We want to find a way for them to understand we aren’t there to be a concern but to help them.”

Petrobras signed a memorandum of understanding with Total last week during a trip to France by Gabrielli, the Brazilian company said in an e-mailed statement. The partnership between the two companies is at a “very early stage,” Petrobras said.

The Rio De Janeiro-based company may increase its five-year spending plan because of development in the pre-salt region, Chief Financial Officer Almir Barbassa said last week in Paris. Petrobras, whose capital expenditure amounts to $100 million a day, has proposed investment of $174.4 billion from 2009 through 2013.

The pre-salt offshore area, which has oil deposits beneath a layer of salt resting as deep as 3,000 meters (9,840 feet) beneath the ocean surface and another 5,000 meters below the seabed, includes Tupi. The field holds 5 billion to 8 billion barrels of oil and gas.

Proven Reserves

Under a plan being discussed by Brazilian lawmakers, the government would boost its stake in Petrobras and the company would be the sole operator of all pre-salt fields, which may more than double Brazil’s proven reserves in three years.

“We need to be careful we don’t only talk about discoveries, but real production,” said de Margerie, who has warned of a global oil and gas supply shortage within five years. Total, which didn’t pump any oil in Brazil last year, holds interests in two blocks in the country’s Campos Basin, according to its 2008 annual report.

“The lure of the further pre-salt discoveries, coupled with the potential knowledge that could be gained on new pre- salt exploration opportunities in the Campos Basin and West Africa, could attract many new entrants into the country,” Oswald Clint, an analyst at Sanford C. Bernstein & Co., said in a report published today.

‘Less Ominous’ Law

The 800-kilometer-long (500-mile) offshore area is “set to become one of the world’s major oil-producing regions over the course of the next decade,” the London-based analyst said, adding that Brazil’s planned oil law is “unlikely to deter future foreign investment and is therefore less ominous than perceived.”

Total has forecast lower production in 2009 and then an average 2 percent annual increase through 2014, as five projects that started this year add to output. Their contribution would counter a projected overall decline rate of 5 percent a year, faster than a previous estimate in February of 4 percent, according to the company.

The Paris-based company has also said four further projects will support growth starting in 2013: the Pazflor oil deposit and a liquefied natural gas venture in Angola, the Usan development off Nigeria and the first phase of the Kashagan field in Kazakhstan. The gap in new projects coming on stream has raised concern the company may not reach growth targets.

‘Less Secure’ Outlook

“The outlook for Total’s upstream business appears less secure than investors may have expected,” David Thomas, a Citigroup Inc. analyst, said in a Sept. 17 report following a presentation in London. Thomas kept a “hold” rating on the shares and a target price of 40 euros, noting Total’s failure to “deliver on production promises.”

Total traded little changed at 42.08 euros in Paris trading at 11:28 a.m. local time today, and has risen 8.2 percent this year. That compares with a 7.3 percent year-to-date increase for BP Plc and a 0.3 percent gain at Shell.

Total has decided not to make investment decisions before 2010 on major projects such as the Clov oil field in Angola, the Surmont Canadian oil-sands development and the Laggan/Tormore field in the North Sea, saying some ventures may be delayed to save costs “if needed.” It has already postponed Nigeria’s Ofon II project, calling bids for development “unacceptable.”

Output Drops

Total’s second-quarter output was 2.18 million barrels of oil equivalent a day, down 7.3 percent from a year earlier. Production was curbed by output limits in member states of the Organization of Petroleum Exporting Countries, which agreed last year to record production cuts in a bid to bolster prices.

BP, Europe’s second-largest oil producer, has forecast higher output this year than in 2008, when production averaged 3.838 million barrels a day. Shell, Europe’s biggest producer, has said it may pump less in 2009, while forecasting output growth of 2 to 3 percent going into 2011 and 2012 as new projects come on stream.

To contact the reporters on this story: Tara Patel in Paris at tpatel2@bloomberg.net; Margaret Brennan in New York at mbrennan25@bloomberg.net.

Last Updated: September 23, 2009 05:45 EDT