BG Group Plc, the UK’s third-largest natural-gas producer, is preparing to export oil from Brazil as the Latin American country becomes the company’s key source of crude in the coming decade.
BG created a marketing division in Brazil and leased a tanker to ship oil from the offshore Lula field, the Americas’ second-largest oil discovery in more than 30 years, said Nelson Silva, the head of BG’s Brazil operations. Output at Lula will rise once BG’s partner at the field, Brazil’s state-run Petroleo Brasileiro SA, installs a pipeline and other infrastructure in May or June, he said in an interview on March 25.
Brazil is set to become BG’s largest source of oil within 10 years amid rising output at Lula, where the company holds a 25 percent stake, and at least four other offshore fields, Silva said. BG abandoned two less promising exploration areas in Brazil in the past two years to focus on deepwater finds that will account for 30 percent of its output by 2020, he said.
“We have had a lot of success and it confirms our expectations that this is a great play,” Silva said at BG’s new Brazil headquarters in downtown Rio de Janeiro. “It’s going to open to customers all over the world, including in Brazil,” he said, declining to specify a timeline to begin exports.
BG, based in Reading, England will spend at least $30 billion in Brazil through 2020. The company and partners plan to deploy 12 floating production, storage and offloading vessels, or FPSOs, to raise total output capacity at the Brazilian fields to 2.3 million barrels of oil equivalent a day by 2017.
The first commercial production well at Lula, formerly known as Tupi, will surpass 20,000 barrels a day, up from test output of about 15,000 now, after Petrobras connects a natural-gas pipeline and an injection well. Output at Lula is currently constrained because Brazilian law limits the amount of gas that Rio de Janeiro-based Petrobras can “flare,” or burn off.
“That’s exactly what reduces your production, because you’re limited by the flaring,” Silva said. “We will release all the potential of the well because we want to see it flowing at maximum production.”
Petrobras and its partners BG and Galp Energia SGPS SA plan to add two additional production wells to Lula this year, he said. BG may start exporting production from Lula as early as this year, using the refurbished Suezmax tanker, Silva said. BG is seeking buyers for a first shipment in the first half of this year.
BG will use cash flow from production to fund the $30 billion it plans to invest in Brazil by 2020, he said. That plan contrasts with share and stake sales among other companies that are exploring Brazil’s deepwater reserves in the past year.
Petrobras raised $70 in September in the world’s largest share offering to buy oil reserves from the government and help finance its business plan. Repsol YPF SA sold 40 percent of its Brazil assets to Sinopec Group last year to raise $7.1 billion.
Galp, another partner at Lula with a 10 percent stake, is planning to raise $2.8 billion by selling shares in its Brazil unit in the second half of 2011.
BG has returned two exploration areas to Brazil’s oil regulator since 2009 to focus investments on major discoveries that include the Lula, Cernambi, Guara and Carioca fields, Silva said. This year BG boosted its Brazil production target 38 percent to 550,000 barrels a day in 2020.
“These are such great developments, and you are already committed to $30 billion, you tend to focus your efforts and funds and money on what looks like your priorities,” Silva said.
Oil companies in Brazil often return blocks to the regulator when exploration is unsuccessful. Petrobras, Galp and QGEP Participacoes, the oil company controlled by Queiroz Galvao SA, returned two Santos blocks near BM-S-47 in March after drilling a dry well.
BG plans to compete for exploration blocks on land and offshore in northern Brazil when the government auctions the areas later this year and aims to get majority stakes to control day-to-day operations, Silva said. Petrobras runs operations at all five of BG’s blocks in Brazil.
“BG would like to become an operator in Brazil, no doubt, if we can be successful in the next bidding round,” Silva said.
Any additional fields will push BG’s Brazil spending target above $30 billion, he said. Brazil’s next bidding round includes areas outside the so-called pre-salt region that holds Lula.
Last year Brazil passed legislation that makes Petrobras the sole operator of any new exploration areas in the pre-salt, which runs 800 kilometers (500 miles) along Brazil’s coast from Espirito Santo to Santa Catarina states. It has oil deposits beneath a layer of salt resting as much as 3,000 meters beneath the ocean surface and another 3,000 to 6,000 meters below the seabed.