Development costs could top $100 billion
Just as Brazil moves closer to weaning itself off fossil fuel with its rich production of ethanol from sugar cane, the country's recent major oil discoveries at its Tupi field off the coast of Rio de Janeiro and elsewhere could vault it to well within the top 10 list of world petroleum reserves.
Experts see a big price tag to extract the oil -- located under 7,000 feet of water and another 7,000 feet of sub-sea salt -- much greater than $100 billion, said Peter Wells, director of U.K. research for Neftex Petroleum Consultants.
"The cost of development is likely to be high not just because of the water depth and the thick overlying salt but also because of the reservoir and the reservoir fluids," Wells said in an e-mail to MarketWatch
But with oil at $135 a barrel and rising fast, the Tupi oil field, hailed as the Western Hemisphere's biggest oil strike in 30 years, will pay rich rewards for state-run Petrobras and other oil services and petroleum producers working in the area.
A deep water oil field without these complications would probably cost $50 billion to $80 billion to develop at today's prices, but with the additional reservoir challenges, gas handling and CO2-handling issues from the site, these costs will be much higher, Wells said.
"If Tupi is part of an extensive new play with some 20 [billion to] 30 billion barrels, the development of the whole play, assuming similar reservoir and fluid issues, will cost substantially more than $200 billion, plus additional infrastructure costs -- easy to see the whole play costs exceeding $250 billion if the high side reserves can be proven," he said.
Big Brazil oil
Brazilian President Luiz Inacio Lula da Silva has recently hailed its big oil blocks that offer a potential to turn the country into one of the top oil reserves on the planet.
With the Tupi find and a string of others in the Santos Basin and elsewhere, Brazil could have reserves in the 50 billion barrel range, perhaps the seventh or eight largest in the world, Wells said.
Eyeing the payday, Brazil's National Petroleum Authority is considering hiking its oil exploration taxes to boost the benefit of its booming oil business, which includes some $20 billion for two new refineries planned by Petrobras.
To guard the oil, Brazil intends to use a planned $600 million nuclear-powered submarine to protect the country's offshore fields, Defense Minister Nelson Jobim said recently.
Meanwhile, Wall Street has been taking note of Petrobas's potential.
This week, Fitch Ratings upgraded Petrobas' foreign currency issuer default rating to BBB from BBB-.
"Petrobras' ratings are supported by proven hydrocarbon reserves, a favorable international product price environment and successful corporate restructuring," the ratings agency said.
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