Galp, BG Advance After Making New Oil Find in Brazil

By Joao Lima

Aug. 8 (Bloomberg) -- Galp Energia SGPS SA, Portugal's biggest oil company, and BG Group Plc rose after finding light crude oil in a deepwater well in Brazil's Santos Basin, the location of the biggest discovery in the Americas since 1976.

BG, the U.K.'s third-largest oil and natural-gas producer, climbed as much as 3.4 percent in London trading. Galp jumped 6.2 percent in Lisbon. The Iara well discovery is in the same block as the Tupi find, estimated to contain as many as 8 billion barrels of recoverable oil.

``Given further drilling updates are expected soon, we believe the share price has further upside potential in the short to mid term,'' Anish Kapadia, an analyst at UBS AG, said today in a research note. He has a ``buy'' rating on Galp.

Lisbon-based Galp is seeking to expand exploration in countries including Brazil and Angola to increase access to crude supplies and rely less on refining and selling fuel at home and in neighboring Spain. It owns holdings in four exploration blocks in the Santos Basin, and like BG has a stake in Tupi.

Tupi is the largest oil discovery in the Americas since Mexico's Cantarell field was found in 1976, and compares with the 12 billion barrels held at Kazakhstan's Kashagan field, the largest oil find in the last three decades.

Petroleo Brasileiro SA, Brazil's state-controlled oil company, is the operator and owns 65 percent of the block where both the Iara and Tupi wells were drilled. BG owns 25 percent and Galp owns 10 percent.

Estimated Reserves

``Given the discovery, recoverable reserves on block BM-S- 11 could increase to 10 billion barrels from currently 5 billion to 8 billion barrels,'' Kapadia said.

Galp jumped as much as 80 cents and traded at 12.98 euros in Lisbon at 1:50 p.m. local time. BG increased as much as 38 pence and last traded at 1,107 pence. Petrobras, as the Brazilian oil company is known, rose 34 cents, or 2.5 percent, to 14.17 euros in Frankfurt.

Iara is in Brazil's ``pre-salt'' offshore region, a new oil province that may contain about 50 billion barrels of oil according to Peter Wells, a director at U.K. research company Neftex Petroleum Consultants Ltd. The Iara well, which has yet to be declared commercially viable, is still being drilled in the hope of finding more oil at greater depths.

The oil at Iara has a 30-degree grade according to the American Petroleum Institute scale and is located 230 kilometers (143 miles) off the coast of Rio de Janeiro, Petrobras said yesterday. The well was drilled in water 2,230 meters deep and to a depth of 5,600 meters beneath the ocean floor.

`Material Discovery'

BG Chief Executive Office Frank Chapman today described Iara as a ``material discovery.'' The well ``is the sixth consecutive drilling success in the deep water pre-salt Santos Basin since BG and its partners began their drilling program in 2005,'' Reading, England-based BG said today in a statement.

Some oil industry analysts, including David Thomas from Citigroup Global Markets Inc., have said that Tupi, Tupi Sul and Iara may be linked as part of a larger offshore deposit.

Petrobras in January said that a gas and oil discovery known as Jupiter, in the Santos Basin's BM-S-24 block, could be as big as Tupi. Petrobras owns 80 percent of Jupiter and operates the well. Galp has 20 percent of Jupiter.

Refining and marketing still account for more than half of Galp's operating profit. Galp's first-half adjusted net income fell 25 percent to 214 million euros as crude prices rose, squeezing refining margins 46 percent to $3.50 a barrel, Galp said Aug. 6.

Boost Spending

Chief Executive Officer Manuel Ferreira de Oliveira on June 27 said Galp will spend an estimated 9 billion euros this year to buy gas and oil for its customers, about 3 billion euros more than in 2007.

Eni SpA, Italy's biggest oil company, and Portuguese holding company Amorim Energia BV, each control a third of Galp. Eni may seek to take control of Galp or sell its stake in the Portuguese oil company if it's not successful, Eni Chief Executive Officer Paolo Scaroni said July 31.

Galp said in a regulatory filing today that it hasn't held any contacts with Repsol YPF SA of Spain that could lead to a merger, and that the companies haven't discussed any asset swap related to the potential acquisition by Gas Natural SDG SA of Spanish utility Union Fenosa SA.

The statement followed a report in Portuguese daily newspaper Diario Economico that said Galp shareholders were in talks with Repsol. An official at Repsol declined to comment.

To contact the reporter on this story: Joao Lima in Lisbon at jlima1@bloomberg.net