Petrobas scores again in Santos Basin

Petrobras today announced the discovery of a new accumulation of good quality oil (26º API) in the Santos Basin pre-salt reservoirs.

The discovery resulted from drilling well 4-BRSA-818 (4-RJS-668), named Macunaíma, at a water depth of 2,134 meters, located in the 1-RJS -617D (Parati) assessment area and 244 km off the coast of Rio de Janeiro State.

The discovery was confirmed through oil logging via cable test in the reservoirs located at a depth of about 5,680 meters.

Petrobras is the operator of the consortium for the exploration of block BM-S-10 (65%), which is also composed of BG Group (25%) and Partex Brasil (10%).

The consortium will continue the activities and investments necessary to assess the deposits discovered in this area as per the Evaluation Plan approved by the National Petroleum Regulator (ANP), the completion of which is expected to take place in April of 2012.

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Petrobras will spend $3.5 billion over the next four years double biofuels output

Will the waterways soon be flooded with biofuel tankers?

Brazilian state-run energy giant Petrobras (PBR, PETR4.BR) will spend $3.5 billion over the next four years to more than double biofuels output, positioning the company to take advantage of global demand for clean, renewable sources of energy.

“We are preparing for a global scenario in which the demand for biofuels is expanding,” Miguel Rossetto, chief executive of Petrobras biofuels unit Petrobras Biocombustivel, said in an interview.

Petrobras created Petrobras Biocombustivel in 2008 to be the platform for its entry into Brazil’s biofuels sector, where sugarcane ethanol has been in use since the 1970s. But the world’s need to reduce carbon emissions, including firm targets set by some countries, means that demand for biofuels such as ethanol and biodiesel will likely explode in coming years.

The transition toward low-carbon economies is already “definitive,” Rossetto said, “and the evolution of the low-carbon economy for the fuels sector is already a reality in some countries and will be a growing reality for the rest of the world.”

“The pace of growth, the volume of growth and the size of these markets are what’s in play,” Rossetto said. “But the course of expansion for renewable energy markets for us is a given.”

Petrobras Biocombustivel currently operates or has stakes in 14 biofuel mills, including 10 dedicated to ethanol production and four for biodiesel, Rossetto said.

The company plans to spend $2.5 billion to boost ethanol and biodiesel production, with about 80% of the total earmarked for ethanol projects, Rossetto said. An additional $1 billion will be spent on infrastructure development, including Petrobras’ participation in a $3.3 billion ethanol pipeline project, as well as research and development.

Ethanol production is targeted for 2.6 million cubic meters by 2014, up from output of one million cubic meters in 2010. Biodiesel production, meanwhile, is expected to climb to 750,000 cubic meters in 2014, up from 500,000 cubic meters at the end of last year.

The company’s primary focus is to meet rising demand in Brazil, Rossetto said. Brazil not only mandates a 25% blend of ethanol into gasoline at the pump, the country also has a massive flex-fuel fleet of light vehicles that can operate seamlessly on ethanol, gasoline or any combination of the two fuels.

Demand for biofuels from the petrochemicals sector is also growing as the industry moves toward greater production of so-called green plastics. Local petrochemicals giant Braskem (BAK, BRKM5.BR), in which Petrobras holds a 49% stake, consumes about 400,000 cubic meters of ethanol per year.

Brazil’s appetite for biodiesel is expected to grow “very strongly,” given the heavy use of diesel fuel in the country’s transportation sector, Rossetto said. And while the government currently requires a 5% blend of biodiesel with diesel fuel, called B5, that’s likely to rise in coming years.

“We believe that in 2011, the government should start an initiative to put in place a regulatory regime for biodiesel. The idea is to increase the biodiesel blend to 10%, starting in 2012,” Rossetto said.

While high tariffs present a barrier to ethanol exports, Rossetto said that a recent biodiesel joint venture with Portugal’s Galp Energia (GALP.LB) opens a golden door to the European market.

Petrobras will produce palm oil on plantations in Para state, then ship it to a refinery in Portugal capable of producing 250,000 cubic meters of green biodiesel by 2015.

“We think that Europe will not be able to supply via its own production the biofuels necessary to meet the mandate to use 10% biofuels in its transportation sector by 2020,” Rossetto said. “(Europe) should be importers of biofuels.”

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Petrobras approves order for 7 deepwater rigs for $4.64B

Petrobras’ board of directors approved the bidding process for the construction, in Brazil, of the first seven of a total of 28 offshore drilling rigs intended to meet its long-term drilling program with priority given to the pre-salt wells. The new rigs are expected to come into operation in 2015. The remaining 21 rigs will also produced in the country.

During the construction period, 32,000 thousand direct and indirect jobs are hoped to be created in eight years. In the operation phase, meanwhile, there will be 10,000 new positions (direct and indirect) for a period of 10 years.

The winner of this first lot was the Estaleiro Atlântico Sul shipyard (EAS), located in the state of Pernambuco, for a final price of $4,637,000,130.00, i.e., $13,000,000.00 less than the original proposal. Slated to start operating in 2015, each rig’s final price was set at $662,428,590.00.

The charter contract will be signed with Sete Brazil S.A. (Sete BR), which will take on the construction contract with EAS. Sete BR is a company formed by the Fundo de Investimentos em Participações – FIP Sondas, which is managed by the Caixa Econômica Federal (CEF), owns 90% of the company, and will have market investors as shareholders, including Brazilian pension funds and investment banks. Petrobras will hold a 10% stake in the new company.

Sete BR will allow companies that are experienced in operating rigs while providing services hired by Petrobras to be partners and co-owners of the drilling vessels. The daily charter rate has already been defined and, when added to the current average operation rate, totals $430,000 to $475,000 per day, in line with the most competitive rates practiced on the international market.

To finance rig construction, Sete BR will count on its own capital, on capital provided by partners, and on resources derived from long-term funding granted by the National Development Bank (BNDES), which will fund the portion related to the Brazilian good and service content for the construction of each rig. Additionally, there will be resources coming from the export development agencies of the countries that provide the content to be imported and from commercial banks. To their benefit, the funders will have a performance guarantee hired by the EAS shipyard and a credit guarantee contracted by Sete BR, both supplied by the Shipbuilding Guarantee Fund (FGCN), which had its capacity expanded specifically to address this type of guarantee.

With the Rig Project, Petrobras aims to foster conditions for it to be technically and economically feasible to build next-generation platforms to operate in deep and ultra deep waters in Brazil, as it did with production platforms, which today are entirely produced in the country and within global quality parameters.

The Executive Board also decided to cancel another bid that was in progress for the hiring of up to two drilling rigs on account of the prices that were quoted, as they were not advantageous to the Company.The third bidding process, to charter lots of up to four drilling rigs, is still under review and is expected to be completed within 30 days.

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