Petrobras to Start Output at Tupi in 2009

Petrobras to Start Output at Tupi Ahead of Schedule
By Joe Carroll and Monica Bertran
May 5 (Bloomberg)

Petroleo Brasileiro SA, Brazil's state-controlled oil company, plans to begin pumping crude from its 8 billion-barrel Tupi field in 2009, a year ahead of schedule, and to start its Carioca field in four to five years.

A test well at the offshore Tupi field will produce about 20,000 barrels of oil a day starting in next year's first quarter, Chief Executive Officer Jose Sergio Gabrielli said today in an interview in Houston. Production will reach 100,000 barrels a day by the end of 2010, he said.

Technical challenges involved in tapping crude beneath thousands of meters of rock and salt aren't insurmountable, Gabrielli said. The company will announce an increase in June in its $112.7 billion, 5-year capital budget to fund the work at Tupi, the Western Hemisphere's largest petroleum discovery since 1976, and other offshore prospects, he said.

``I am very surprised that they're saying they can start production that quickly,'' said Matt Cline, a U.S. Energy Department economist who tracks the Latin American energy industry. ``I can't even think of a scenario where that's even plausible.''

Petrobras, as Rio de Janeiro-based Petroleo Brasileiro is known, rose 1.6 percent to 43.70 reais in Sao Paulo. The stock has climbed 25 percent since the company said in November that Tupi may hold 8 billion barrels of recoverable oil equivalent.

Carioca

Carioca, located to the southwest of Tupi, may hold 33 billion barrels of oil, Brazilian regulator Haroldo Lima said last month. The estimate was based on a magazine article, Lima later said. Gabrielli said it will take several months of drilling to evaluate the field.

There are 7 or 8 prospects in the area of the Atlantic Ocean where Tupi and Carioca are located, Gabrielli said. Other producers exploring that area for oil and gas include Exxon Mobil Corp., Chevron Corp., BG Group Plc and Repsol YPF SA.

``The hypothesis we have is that they are very large reserves, but we don't know,'' Gabrielli said. The increase in capital spending will be ``a lot,'' he said. ``We need more rigs, and they are very expensive right now.''

Tupi, located 155 miles (250 kilometers) off the Brazilian coast, may employ more than six drilling vessels once next year's test well is finished, Gabrielli said. The world's most advanced deepwater rigs are renting for $600,000 or more per day in some cases.

Fine Tuning

Petrobras plans to use knowledge gained from next year's production test at Tupi to ``fine tune'' tools and techniques it'll use to tap other offshore reservoirs, Gabrielli said. The company is spending $60 million to drill each offshore well, down from $240 million per well a few years ago, as rig crews and engineers become more familiar with the region's geology, he said.

``We think we don't have any big technical challenge here,'' Gabrielli said. ``We know pretty much most of the technology.''

Petrobras expects to increase production to the equivalent of 4.2 million barrels of oil a day by 2015, Gabrielli said. The company produced 2.34 million barrels a day in March.