A New Oil Hot Spot in Brazil’s Campos Basin

MACAE, Brazil

Prudhoe Bay, the North Sea, the Gulf of Mexico . . . Campos Basin?

As global oil hot spots go, the deep-water oil field just off shore here doesn’t conjure up images of a black gold bonanza. But Unocal, Texaco, Schlumberger, Shell and other giants are funneling big money through this palm-lined beach town in hopes that it will someday be synonymous with other fabled oil finds. And industry insiders like the odds of it happening.

Macae is the closest port and staging area to the Campos Basin, the source of about three-quarters of Brazil’s known oil reserves. But experts think vast amounts of oil remain to be discovered there and in adjoining fields, and that Macae, situated about 100 miles east of Rio de Janeiro, could become Brazil’s Houston over the next decade.

How much more oil does Brazil have? No one will know until the hundreds of wells planned are actually sunk. But some believe Brazil’s proven reserves could grow from the current 7 billion barrels to 30 billion by 2009, putting it in the same league as Mexico and the United States. Of the Western Hemisphere, only Venezuela would have more reserves. And some think that prediction is too conservative.

“Brazil has the highest undiscovered potential in Latin America,” said Sondra Scott of Cambridge Energy Research Associates. a consulting firm in Cambridge, Mass. “That’s why people are so interested in it. There is heavy optimism in terms of the volume that can be brought up.”

Realizing that potential would be an enormous economic plus for Brazil, which now must import one-third of the 1.8 million barrels it consumes on an average day, adding $4 billion annually to its trade deficit, which has helped destabilize Brazil’s economy in recent years.

Brazilian oil finds would also be good for consumers the world over because they would add to global supplies and ease pressure on prices, said oil economist Phil Verleger of Newport Beach, who thinks Brazil could have as much as 60 billion barrels in undiscovered reserves. Better technology and liberal government policies, he says, are causing oil to be “discovered in places we never thought we’d find it.”

Signs that Brazil is starting to be recognized as an oil hot spot are evident in Rio de Janeiro, where foreign oil firms are flooding the city and soaking up the market for office space. Up the coast from Macae, in the city of Campos, the state government plans a huge new port to accommodate a still-phantom fleet of oil tankers. And in Macae, helicopters swarm the skies, shuttling supplies and people among more than 40 oil platforms.

Why now? Because after half a century of protectionism, Brazil has finally opened its oil fields to foreign investment, much as it has opened up other sectors of its economy, from banking to fast food to auto manufacturing, as it turns to free markets and dismantles its state-run monopolies.

It’s a conscious effort by the Brazilians to cash in on the kind of oil wealth that in the last decade or so has been developed in countries and regions such as Angola, former Soviet republics around the Caspian Sea, and other sites where oil had been thought to be either inaccessible or tapped out.

“It’s not so much a hot spot as warming up,” said Sergio Brandao, chief of Brazilian operations for Unocal, which has signed three exploration deals here and regards it as a major focus of its global activity in coming years. “If all the pieces come together, it could become a very hot place indeed.”

Brazil recently broke the monopoly on oil exploration long held by Petroleo Brasileiro, or Petrobras, making it answer just like any other company to the National Petroleum Agency, or ANP, a new federal agency created to award and oversee oil concessions. The ANP’s general director, David Zylbersztajn, a son-in-law of President Fernando Henrique Cardoso, was energy secretary for Sao Paulo state.

In June, Unocal and nine other foreign oil companies bid $189 million at the ANP’s first auction to lease exploration sites, mostly in deep ocean water and at the mouth of the Amazon River. Companies are essentially paying for the right to drill in ocean depths of 1 mile, sometimes more.

If the drilling is successful, companies would then build giant oil platforms, similar to the immense structures Petrobras already has in place, capable of producing as much oil as some countries do.

Contrary to what some might assume, Petrobras has been anything but marginalized by the liberalized national investment policy. A leader in deep-water drilling technology, the company last month started up its new P-35 platform, which is a converted supertanker capable of handling 100,000 barrels a day and storing 1 million barrels.

In the last two months, Exxon, Shell and others have formed $5 billion worth of joint ventures with Petrobras, which still controls 13% of Brazil’s sedimentary basins and wields enormous political clout

in Brazil.

Although the ANP’s Zylbersztajn predicts new oil investment will total $25 billion over the next decade, oil and natural gas exploration here--as anywhere--remains a crapshoot. Brazil’s potential is based on relatively thin geological data, and only drilling in difficult deep-water conditions will tell the tale.

“Brazil is the new frontier. But that could change if wells come up dry holes,” said Roberto Fainstein, new Brazil ventures manager at Schlumberger, the French oil services giant, which is investing $50 million in a speculative venture to “map,” or take seismic readings, over hundreds of square miles in the Campos Basin.

The biggest reason for optimism is ongoing advances in deep-water drilling and seismic technology, of which Brazil is a leader. Petrobras claims the world’s deepest commercial oil find, the Roncador field at 6,100 feet down, at the south end of the Campos Basin. It will become operational next year, when about 180,000 barrels of crude a day begin flowing to a massive floating platform now under construction in Quebec.

Also in Brazil’s favor is the fact that so much of the country’s oil potential is unexplored, said Bill Durbin, also an energy analyst with Cambridge Energy. Only five of the nation’s 28 sedimentary basins have been “actively” explored by Petrobras.

Eduardo Lopez, analyst with Washington-based consulting firm Petroleum Finance Co., thinks the Amazon River basin could prove as rich as the offshore fields.

The geology of some of those unmapped and untapped basins closely resembles that of offshore West Africa, where enormous oil deposits have been found in recent years, Unocal’s Brandao said.

“It stands to reason, since 250 million years ago it was all one continent,” he said, a reference to the theory that Africa and South America were once joined.

In stark contrast to the kinds of environmentalist protests seen against deep-water drilling in other parts of the world, the activity in Brazil has yet to galvanize much opposition. In part that’s because Petrobras has a good environmental record.

Nor is there alarm here about emissions from fossil fuels. Delcio Rodriquez, Brazil coordinator for the environmental group Greenpeace, said Brazil has among the world’s lowest levels of hydrocarbon emissions. About 90% of the country’s electric power comes from pollution-free hydroelectric plants, and Brazil has had a mandated low-emissions gasohol program in place for cars for 20 years.

Another factor pulling foreign oil companies to Brazil are expectations of spiraling demand for energy right here. The country’s economy is projected to grow rapidly, and along with it, per-capita ownership of autos, energy-intensive industrial projects and the like.

That’s why Petrobras President Henri Reichstul predicted in an interview that by 2005, Brazil will be self-sufficient in oil and produce 2 million barrels of oil a day, a 66% increase over current levels.

“It will be a good race, but remember, we have doubled production in five years, so we have shown what we can do,” Reichstul said.

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Brazilian Crude

Current projections call for Brazil’s average daily output of crude oil to rank it No. 8 in the world this year, not counting OPEC countries:

Note: Figures include the crude oil equivalents of natural gas and condensates.

Source: Deutsche Banc Alex. Brown

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Paula Gobbi in The Times’ Rio de Janeiro bureau contributed to this report.