Offshore discovery could make Brazil major oil exporter

A monster offshore oil discovery could help Brazil join the ranks of the world's major exporters, but full-scale extraction is unlikely until 2013 and will be very expensive.

The "ultra-deep" Tupi field off the coast of Rio de Janeiro could hold as much as 8 billion barrels of recoverable light crude, and initial production should exceed 100,000 barrels daily, says Guilherme Estrella, exploration and production director of Brazilian state oil company Petroleo Brasileiro pbr.

Petrobras, as it is known, will start pilot pumping in 2010 or 2011 but full production would take several more years, Estrella said late Thursday.

After soaring 26% in New York Thursday on news of the find, Petrobras stock opened more than 7% higher Friday on Sao Paulo's Bovespa exchange.

Getting the oil out will be an expensive and formidable challenge because the oil is so deep. The lag time before production means any impact on world oil prices won't come soon.

Petrobras, however, is well-known for its experience in extracting oil from extremely deep offshore reserves and is widely regarded as one of the planet's best-run state oil companies.

Tapping the Tupi field will cost billions of dollars, but Petrobras is flush with cash for strategic investments because of growing production and high international oil prices.

The Tupi field lies under 7,060 feet of water, almost 10,000 feet of sand and rocks, and then another 6,600-foot thick layer of salt. The company drilled test wells that lie under 7,100 feet of water, 177 miles south of Rio de Janeiro.

Bear Stearns analyst Marc McCarthy estimates the value of the oil in the block at $25 billion to $60 billion depending on international prices.

Tupi "is immense and marks the beginning of a new horizon for Brazil," he said in a note to clients.

"We are sure the question will arise — will Brazil join OPEC?" McCarthy wrote. "But more importantly, it has established an aura of optimism for massive future exploration success."

Brazil on Thursday also announced it would withdraw 41 blocks of prospective underwater oil extraction territory from an auction of 312 oil blocks to be held this month.

The country will put the remaining 261 blocks up for auction but will reserve the most promising areas around the Tupi field for Petrobras.

Petrobras chief executive Sergio Gabrielli said the Tupi field is "only part of a new frontier" for Brazilian oil exploration. He predicted the field and future finds could give Brazil the world's eighth-largest oil reserves.

"Brazil's reserves will lie somewhere between those of Nigeria and those of Venezuela," Gabrielli said.

Petrobras says the Tupi field, off Brazil's southeastern Atlantic coast, has between 5 billion and 8 billion barrels — equivalent to 40% of all the oil ever discovered in Brazil.

Brazil's total oil reserves currently rank 17th in the world, with 14.4 billion barrels of oil equivalent, Gabrielli said.

Thursday's news of the discovery rocked a country that became a net oil exporter only last year, but must still import light crude oil for the refined products it needs to fuel South America's largest economy. Brazil produces — and exports — mostly heavy crude oil, which has to be mixed with the light oil in refineries.

For a country that went deeply into debt buying foreign oil in the 1970s and 1980s, "this has changed our reality," said Dilma Rousseff, presidential chief of staff.

Petrobras has a 65% operating stake in the Tupi field, Britain's BG Group holds 25%, and Petroleos de Portugal — a division of Galp Energia — holds the remaining 10%.

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