Kate Mackenzie Oil field fever


Santos Basin. Source: Petrobras

Petrobras, BG and Repsol are jubilant over tests from a well in Brazil’s Santos pre-salt field, dubbed Guara, that show it could initially flow at 50,000 barrels per day, and could hold up to 2bn recoverable barrels of oil equivalent.

Coming a week after BP’s ‘giant’ Gulf of Mexico discovery, it begs comparison. But the two announcements are quite different: BP’s was a discovery in an area generally thought to be already thoroughly-explored, while Guara was discovered over a year ago, and was already thought to be one of the bigger new discoveries in recent years. Moreover, Guara in an area that is the great new hope for oil supplies.

BG holds a 30 per cent stake in the well and Petrobras, the operator, owns 45 per cent; Repsol has the balance.

But as to who would welcome it more, it could be a tie between BG and the Brazilian government.

It will be a particular relief after two wells drilled in July – including one operated by BG – turned up dry, raising questions about whether Brazil’s pre-salt oil reserves, as massive as they are, might have been somewhat overstated. (The other well, incidentally, was drilled by Exxon.)

And it will also be a relief to Brazil, which plans to take greater control of its oil reserves, by switching companies from concessions to production sharing agreements. The difference is explained in this FT report:

In a concession, oil companies are given any oil they produce in return for shouldering exploratory and operational risks and for paying royalties and other fees to the government. Most of Brazil’s oilfields use this system, including about 30 per cent of the pre-salt region. These were put out in several concessions before the region’s potential was understood, mostly to Petrobras, the government-controlled but publicly traded-oil company, either alone or in partnership with international oil companies (IOCs) such as ExxonMobil, Royal Dutch Shell and BG.

In a PSA, the oil remains government property and oil companies are given a share of it as payment for their services.

Brazil’s chief minister, Dilma Rousseff, told the FT last week that the new model was reasonable, given the high revenues and low level of exploratory risk involved in the pre-salt plays.

As The Times points out, the Guara well looks likely to have more recoverable barrels of oil equivalent  – between 1.1bn and 2bn – than BP’s Gulf of Mexico find announced last week, which might have about 500m barrels of oil — BP’s find, however, is in a much more preliminary stage.

Here’s a list we published last week, from Wood Mackenzie. Notice that Guara was already on the list, albeit with a lower reserves estimate than that announced today:

Related links:

How much oil IS there in the Santos Basin? (FT Energy Source, 04/09/09)
BP’s GoM discovery: How giant is giant? (FT Energy Source, 02/09/09)