Petrobras, Brazil's state-controlled oil company, confirmed on Wednesday that is has discovered a huge offshore crude oil and natural gas field that has the potential to turn the company into one of the world’s largest oil producers.
The newly found Iara field is located 143 miles off of Brazil’s southeastern coast, and is 2,230 meters underground. Company officials estimate that Iara, which has a total thickness of 6,080 meters, contains between 3 – 4 billion barrels of oil.
The Iara field is also part of the Santos Basin where only last year Petrobras uncovered the incredibly deep Tupi field, which it reported contained in the region of 8 million barrels of recoverable light crude.
According to BP, Iara and Tupi combined have the capability to double Brazil’s 12.6 billion barrels of proven oil reserves and supply the country with oil for the coming five years.
Yesterday’s announcement only goes further to confirm the unprecedented hydrocarbon potential of the sub-salt layer off of the Brazilian coastline.
Petrobras, who are based in Rio de Janeiro, operate and own 65% of Iara. BG Group holds a 25% stake, while the remainder is held by Portugal’s Galp Energia SGPS SA.
Ted Harper, senior research analyst with Frost Investment Advisors, Houston, said: “It's still a huge field and bigger than almost anything around.” The company manages the equivalent of $2 billion of stocks and bonds, including that of Petrobras.
Petrobras’ preferred shares – the most traded class of stock – rose by 4.3% to 29.90 reais in Sao Paulo yesterday. Voting shares went up even further, by 5.2%, to 36.94 reais, leaving gains in the benchmark Bovespa index.
Petrobras's preferred shares have fallen 45% since reaching a high of 52.51 reais on May 21, when the company became the world's fifth-largest by market value. At yesterday's close it ranked slightly lower in 21st.
Petrobras's decline in the period is more than double the 21% slide in the benchmark Bovespa index, in the same period. During this time Brazil's government launched the discussion of how to manage the new fields in the pre-salt area and oil prices fell from record highs; both contributing to the company’s fall.
For Lisbon-based Galp, which has the potential for more oil production, in the Tupi field, than at any point in its company history, Brazil will have a "transformational impact," according to Jason Kenney, an analyst with ING Bank NV.
Galp has declared plans to expand exploration in countries such as Brazil and Angola to increase access to crude supplies and rely less on refining and selling fuel on the domestic market and in Spain, which still accounts for half its operating profit.
Galp ended the 2007 financial year with proven and reserves of 31 million barrels.
Before Petrobras can begin development of the sub-salt fields around Tupi - including Iara - it will require continued, substantial investment. Analysts at UBS estimate the required figure to total between $600 billion to $1.2 trillion over the coming decades.
Unsurprisingly a spokesman for Petrobras said that the cost to develop the fields will probably be much lower.