Brazil Doubles Oil Estimate for Deep-Water Field

Brazil doubled estimates for the Libra oil field, making it the country’s largest discovery, as the government prepares to auction the reservoir in the first sale of the pre-salt region.

Libra, located in deep waters of the Atlantic, holds 8 billion to 12 billion barrels in recoverable reserves, Magda Chambriard, head of Brazil’s oil regulator, said in Rio de Janeiro today. The ANP, as the regulator is known, expects reserves to be toward the higher end of the estimate, she said. Libra’s previous estimate was 5 billion barrels of oil.

“I’ve never seen anything like this,” Chambriard told reporters during a press conference today. “It’s in the range of two-thirds of the proven reserves in Brazil.”

Brazil’s most productive wells are located in the pre-salt region, where oil is trapped miles below the seabed under a layer of salt. Today’s estimate makes Libra bigger than Lula, which until now was considered Brazil’s largest field with an estimated 6.5 billion barrels of reserves.

The ANP said in a statement earlier today that it expects to conduct the first auction for the pre-salt region in October and that the bidding round will be limited to Libra. The auction will be Brazil’s first to use a profit-sharing model.

Petrobras falls

Petroleo Brasileiro SA, the state-run producer, is required by law to operate all new concessions in the region with a minimum 30 percent stake. In March the ANP said it would auction areas holding about 10 billion barrels of recoverable reserves in the pre-salt region in November.

Petrobras declined 1.1 percent to 19.69 reais at 4:06 p.m. in Sao Paulo trading compared with a 0.4 percent drop by Brazil’s benchmark stock index.

“The ANP is giving a promising message, but it’s still premature to speak about reserve quantities,” Luana Helsinger, an analyst at brokerage GBM Grupo Bursatil Mexicano, said in a phone interview from Sao Paulo. “The big question mark of this auction is how much cash Petrobras will have to spend.”

Petrobras declined to comment on its bidding strategy in an e-mailed reply to questions.

The pre-salt as a whole has surpassed the company’s output targets. In 2010 Petrobras, as the world’s biggest producer in waters deeper than 1,000 feet (304 meters) is known, planned to be pumping 241,000 barrels a day from the pre-salt by 2014. In March Brazil’s pre-salt oil and gas output reached 349,600 barrels a day, according to the ANP.

‘Big Companies’

The Libra area has some of the best quality reservoirs in the pre-salt region, Chambriard said. The ANP increased the reserve estimates after CGG Veritas, a geophysical services company, carried out a study of the first exploration well where the regulator encountered a layer of oil 326 meters deep and did imaging of the surrounding area, Chambriard said.

The size and quality of Libra will attract competition from “all the big companies” in the oil industry, including Chinese producers who were not active in a May bidding round for areas in north and northeastern Brazil, she said.

It will be the first auction in deep waters of the Santos Basin, where Brazil’s largest oil fields are located, since authorities said in 2007 that the pre-salt holds at least 50 billion barrels of reserves.

Some major oil companies may refrain from the auction because regulations put Petrobras in charge of operations and the pace of development, T.J. Conway, a research and advisory manager at New York-based Energy Intelligence Group, said by telephone.

Development Challenges

“I’m still hesitant to say some of the big companies that prefer to have operating positions and more control over cost management would be eager to participate,” said Conway. “It could be competitive among companies that want to take non-operating stakes.”

Libra’s scale may even discourage some companies seeking to extract and sell oil at a fast pace, Conway said. The size of the field means Petrobras and its partners will need more oil wells and production vessels for the project, he said.

“An even larger field than expected could potentially bring with it added development challenges,” Conway said.

Petrobras will have to compete with other companies, either by itself or in a consortium, to take more than the 30 percent stake it gets automatically under law. The amount Petrobras pays for the minimum stake will be set by the winning bid for the remainder of the project, Chambriard said.

“Petrobras is forced to participate and that may play a bit against the company,” said Helsinger. “It will depend on how they will be forced to cover that 30 percent.”

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