UPDATE 1-Brazil may need $60 oil to tap subsalt finds-CERA

Wed May 27, 2009 4:52pm EDT
(Adds comments on Brazil from Exxon Mobil CEO in final paragraphs.)
By Joshua Schneyer
NEW YORK, May 27 (Reuters) - Petrobras (PETR4.SA) (PBR.N) may need benchmark oil prices near $60 a barrel to profitably tap Brazil's massive subsalt offshore finds, Cambridge Energy Research Associates (CERA) said.
"We've evaluated the economics and believe that (Brazil's subsalt oil) can be developed with WTI or Brent at $60," said Enrique Sira, CERA's director for Latin America and co-author of an upcoming report on Brazil's subsalt oil.
"If all goes well, Petrobras and partners could reach a significant production level after 2019."
Petrobras and partners have found up to 14 billion recoverable barrels of subsalt oil since 2007. Brazilian officials believe the reservoirs contain 30 billion to 100 billion barrels, rivaling Europe's huge North Sea finds of the 1970s.
But estimates vary on oil price levels needed to economically exploit Brazil's new oil, which is located beneath 3 to 5 miles (5 to 8 km) of water, sand, stone and a Jurassic-era salt layer.
Chief Executive Officer Jose Sergio Gabrielli said last week that state-controlled Petrobras could tap Brazil's subsalt oil even with oil at $45 a barrel. Petrobras plans to spend $29 billion on the subsalt areas by 2013.
Cera said its $60-a-barrel estimate is preliminary, and added Petrobras may be able to tap subsalt blocks with oil in the $45 to $60 range, but $40 oil would likely make them unattractive. U.S. benchmark oil traded above $63 a barrel CLc1 on Wednesday.
Petrobras, BG Group (BG.L) and Portugal's Galp Energia (GALP.LS) began a 15-month, long-duration flow test this month at their Tupi offshore block, which contains 5 billion to 8 billion barrels of oil.
Petrobras and analysts agree that more long-duration tests are needed before subsalt costs are accurately determined.
"This type of reservoir is irregular," Sira said. "You need long-term tests for reservoir characterization."
That hasn't kept Petrobras from drawing up ambitious plans to pump 1.8 million barrels per day (bpd), with partners, in its Brazilian subsalt blocks by 2020.
Higher world oil prices and lower drilling costs could help Petrobras secure the funding it needs. Since 1980, benchmark oil prices, adjusted for inflation, have averaged around $44 a barrel. Crude dipped as low as $32.40 last December.
Subsalt profits also hinge on potential changes in Brazil's fiscal regime to shift more oil revenue to the government.
"The two largest uncertainties are fiscal regime and viability of technology," Sira said.