Brazilian discoveries could cost record $240b to develop

Chicago: Brazil's oil discoveries, including the Western Hemisphere's largest in three decades, may cost $100 billion more to develop than the industry's costliest field.

The Tupi deposit and nearby offshore prospects probably will cost $240 billion to exploit, said Peter Wells, director of UK research firm Neftex Petro-leum Consultants and a former Royal Dutch Shell exploration manager. The total exceeds the $136 billion estimate for Kazakh-stan's Kashagan field, led by ENI, and would be enough to fund the US space programme for 14 years.

Brazil's state-controlled Petroleo Brasileiro will need to enlist international producers such as Exxon Mobil to raise financing for the platforms and pipelines required to reach crude trapped beneath 10 kilometres of water and rock, Wells said.

The prospects may hold $6 trillion of petroleum and make Brazil one of the world's 10 largest oil producers.

"This oil is going to be difficult to get out of the ground and it will cost a lot," said Wells, who also was a chief negotiator for BP in Azerbaijan. Petroleo Brasileiro "will need the capital expertise only found with the world's largest, most experienced oil companies."

Tupi, the biggest discovery in the Americas since 1976, will start pumping in April 2009, Chief Executive Officer Jose Sergio Gabrielli said in an interview last month. Gabrielli declined to estimate development costs for Tupi and adjacent fields, and a spokesman said yesterday that the company wouldn't comment on Wells's projection.

Twenty-year plan

The $240 billion estimate assumes there are four to seven similar prospects nearby and includes costs to drill wells, lay pipelines and build production platforms over a period of about 20 years, Wells said.

Tupi alone could cost $100 billion, said Wells, part of a Neftex team doing a six-year study to map all of the world's petroleum basins. Cambridge Energy Research Associates, the Cambridge, Massachusetts-based consulting firm headed by Daniel Yergin, said the Tupi-area fields will cost $200 billion to $240 billion.

Costs are rising as producers compete for labour and equipment with oil prices above $120 a barrel. Deepwater drilling rigs are renting for more than $600,000 a day in some cases.

The Brazil fields may hold as much as 50 billion barrels of crude, Wells said. That's more than the reserves of Libya.

Rigs ordered

Petrobras, as Petroleo Brasileiro is known, already has leased about 80 per cent of the world's deepest-drilling offshore rigs and plans to hire 14,000 engineers, geologists and drillers within the next three years, Gabrielli said.

The company announced plans last month to place orders with shipbuilders for 40 new drilling rigs and production platforms that will cost about $30 billion.

"Petrobras will probably face stiff challenges in this endeavour, as there are significant hurdles to overcome in terms of acquiring basic materials, people and rig equipment," said Stephen Ellis, an analyst at Morningstar in Chicago.