June 25 (Bloomberg) -- Vale SA and Petroleo Brasileiro SA, Latin America’s two largest companies by market value, plan to jointly explore for natural gas and oil as the iron-ore producer seeks to ensure energy supplies for its operations.

Vale, the world’s biggest iron-ore miner, will own as much as 25 percent of three blocks in Petrobras’s BM-ES-22 area off the coast of Brazil’s Espirito Santo state, the companies said today at a press conference in Rio de Janeiro. No financial details of the accord were given.

Vale Chief Executive Officer Roger Agnelli said the company plans to use the gas in iron-ore pellet plants and locomotives. The Rio de Janeiro-based company operates nine mills able to produce about 33 million metric tons of iron-ore pellets, used to make steel, and runs about 6,000 miles of railroads throughout Brazil, according to its Web site.

The company, which plans to spend $260 million on gas exploration this year, may triple its consumption of the fossil fuel to more than 6 million cubic meters a year, from about 2 million now, Agnelli said at the press conference.

Eduardo Bartolomeo, Vale’s executive director for logistics, told reporters yesterday that the company is planning to convert all the locomotives for its railroad network in southern Brazil to natural gas from diesel.

Vale may be “interested” in Brazil’s so-called pre-salt offshore fields, Agnelli said.

Other Partnerships

Brazil’s pre-salt region contains the Tupi field, the largest oil discovery in the Americas since Mexico’s Cantarell in 1976. It runs along Brazil’s Atlantic coast from Espirito Santo state, past Rio de Janeiro and Sao Paulo to Santa Catarina state. It may hold reserves of 50 billion to 100 billion barrels, enough to supply all U.S. needs for 7 to 13 years.

Vale and Petrobras are already partnering in 22 exploratory blocks. The two companies, in association with Royal Dutch Shell Plc, own exploration blocks in the Espirito Santo basin. These blocks sit just off the coast from Vitoria, where Vale’s southern railway unloads iron ore at the Port of Tubarao.

Vale is a minority owner in a recent discovery that includes Petrobras. Vale said on May 11 that hydrocarbons were found in the BM-S-48 block in the Santos Basin.

To contact the reporter on this story: Jeb Blount in Rio de Janeiro at jblount@bloomberg.net

Last Updated: June 25, 2009 10:28 EDT