BG, Petrobras to Dig Deeper on Brazil Oil Discovery

By Eduard Gismatullin and Heloiza Canassa

April 9 (Bloomberg) -- Petroleo Brasileiro SA, Brazil’s state-controlled oil company, and Britain’s BG Group Plc will dig deeper into a well off the South American coast after finding oil.

The partners discovered oil in the Corcovado-1 field in the Santos Basin, located off the coast of the southeastern state of Sao Paulo, BG said in a statement posted yesterday on its Web site. BG, the U.K.’s third-largest natural-gas producer, operates the exploration project and holds 40 percent of the BM- S-52 block where the oil was found.

The companies “intend to continue drilling to deepen Corcovado-1, and further evaluation of the well will be undertaken once this is complete,” BG said. “A second exploration well on the block is also planned in 2009 to comply with the National Petroleum Agency commitments.”

BG rose 2.3 percent to 1,055 pence in London trading today. While the shares are up 10 percent this year, they fell almost 7 percent in the last five days, underperforming the 40-member Dow Jones Stoxx Oil & Gas Index in Europe.

“With BG shares having underperformed the European integrated oils by 5 percent over recent days, this news event, although hardly definitive on resources potential, should be taken positively by the market,” wrote David Thomas, a London- based analyst at Citigroup Global Markets Inc., today in an e- mailed report.

Pilot Projects

Reading, England-based BG will invest between $4 billion and $5 billion through 2012 to develop pilot projects in the Tupi, Iara and Guara fields in Brazil’s so called pre-salt basin, which has reservoirs beneath as much as 3,000 meters of water and 7,000 meters of seabed.

BG’s net share of output from the fields will reach 400,000 barrels of oil equivalent a day by 2020, the company said in its annual report.

The U.K. company plans to drill five exploration wells in Brazil this year. Two wells will be at the BM-S-9 on the Iguacu complex, “which is a multi-billion barrel prospect,” Chief Executive Office Frank Chapman said Feb. 5. Two wells also are planned in Corcovado, including Corcovado-1, in the BM-S-52 area, “another multi-billion barrel prospect,” and a well on Sagittario in BM-S-50, he said.

“The Tupi, Corcovado and other neighboring basins are arguably once-in-a-generation discoveries,” Gianna Bern, president of Brookshire Advisory and Research Inc. in Flossmoor, Illinois wrote in an e-mail. “As part of the Petrobras consortium, the BG Group will be on the few companies that will be very well-positioned to extract crude oil from the many basins being developed in the South Atlantic.”

-- With reporting by Laura Price in London. Editors: Mike Anderson, Will Kennedy.

To contact the reporter on this story: Eduard Gismatullin in London at egismatullin@bloomberg.netHeloiza Canassa in Sao Paulo at hcanassa@bloomberg.net