Petrobras Oil Reserves Likely to Swell on Iara Field Estimate

By Jeb Blount

Sept. 11 (Bloomberg) -- Petroleo Brasileiro SA, Brazil's state-controlled oil company, said its Iara offshore field contains 3 billion to 4 billion barrels of oil, its second giant find in a year and enough to supply the country for five years.

The assessment released yesterday is the first estimate of recoverable oil from the discovery announced Aug. 11. Petrobras, as the Rio de Janeiro-based company is known, said in January its Jupiter field in the same region contained gas quantities similar to its Tupi area, the largest oil find in the Americas since 1976.

Iara is in the Santos Basin to the north of Tupi, a 5 billion- to 8 billion-barrel field announced in November. If confirmed, Iara and Tupi, which sit in non-adjacent parts of the same exploration block, could almost double Brazil's 12.6 billion barrels of proven oil reserves, according to BP Plc.

``It's still a huge field and bigger than almost anything around,'' Ted Harper, senior research analyst with Frost Investment Advisors in Houston, said by telephone. The company manages the equivalent of $2 billion of stocks and bonds, including Petrobras, Harper said.

Iara is operated and 65 percent owned by Petrobras. The U.K.'s BG Group Plc holds a 25 percent stake and Portugal's Galp Energia SGPS SA the rest. Brazil consumed an average 2.19 million barrels a day of oil in 2007, according to BP.

The area contains natural gas and a lighter grade of crude than is common in South America, Petrobras said. It measures 26 to 30 degrees on the American Petroleum Institute scale of viscosity, at the top end of the medium range. Lighter grades are easier to refine and therefore command a higher price.

``This will be highly beneficial to Petrobras and its partners in a world where there seems to be a general lack of large, light, sweet crude discoveries,'' Harper said.

August Discovery

The Iara estimate is based on a well drilled in 2,230 meters (7,315 feet) of water. The final well depth is 6,080 meters. When the discovery was announced last month, the well was still being drilled, Petrobras said.

The find is 227 kilometers (141 miles) east-southeast of the city of Rio de Janeiro and lies in a new petroleum province known as the pre-salt. The area, which runs 800 kilometers along Brazil's coast from Espirito Santo to Santa Catarina states, has oil deposits beneath a layer of salt resting as much as 3,000 meters beneath the ocean surface and another 3,000 to 5,000 meters below the seabed.

The most promising areas so far have been near Tupi, Guilherme Estrella, head of exploration and production, said Sept. 1. Petrobras has not said whether Iara is an extension of Tupi. Unleased and unexplored areas sit between the two fields. The block, named BM-S-11, is in two, non-contiguous parts. The Iara portion is less than a quarter the size of the Tupi portion, according to a map supplied by Petrobras.

More to Come

``The volume is impressive because of the relatively small area of Iara when compared with Tupi,'' said Breno Guerbatin, an energy analyst at BNY Mellon Arx, which manages $5 billion worth of assets in Rio de Janeiro. ``But it's more than volume. This announcement is important because nobody was expecting Petrobras to announce new volume estimates before mid-2009.''

The area around Tupi and Iara may contain as much as 70 billion barrels, according to Julio Bueno, economic policy secretary for the government of Rio de Janeiro state, Brazil's main oil-producing region. It will take an estimated $600 billion to develop the fields and surrounding discoveries, according to UBS AG, a Swiss bank.

The discovery may help Petrobras stock, BNY Mellon's Guerbatin said. Petrobras's preferred shares, its most-traded class of stock, have fallen 45 percent since reaching a high of 52.51 reais on May 21 when the company became the world's fifth- largest by market value. At yesterday's close it ranked 21st.

Rapid Slide

Petrobras' decline is more than double the 21 percent slide in the benchmark Bovespa index in the same period as Brazil's government launched a discussion of how to manage the new fields in the pre-salt area and as oil prices fell from record highs, Guerbatin said.

Preferred shares rose 33 centavos, or 1.2 percent, to 28.68 reais in Sao Paulo before the Iara announcement.

For Lisbon-based Galp, which has the potential for more oil in the Tupi field than it has ever had in its history, Brazil will have a ``transformational impact,'' said Jason Kenney, an analyst with ING Bank NV, in a research note last month.

Galp wants 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 Spain, which still account for half its operating profit. Galp ended 2007 with proven and probable reserves of 31 million barrels, or about 1/40th of its potential stake in Tupi and Iara.

To contact the reporter on this story: Jeb Blount in Rio de Janeiro at jblount@bloomberg.net and;