Spillover Effect: Another Pre-Salt Discovery in Brazil

The latest oil and gas discovery offshore Brazil has made the country’s deepwater pre-salt region known as the Santos Basin virtually impossible to ignore. And with every discovery, an economic ripple makes its way through the oil and gas industry and of course, the Brazilian government.

Brazil’s state-owned energy company Petrobras, along with its partners Repsol YPF and BG Group announced Tuesday another oil and gas find in the Abare Oeste (or West) well in the Santos Basin.

The Abare discovery is located within block BM-S-9, which is worth noting because its home to several other large finds. Abare is the fourth well drilled in the BM-S-9 block. Oil and gas has been found in the other three wells, Guara, Carioca and Iguacu.

The same consortium of energy companies announced earlier this month that recent tests of its Guara field found recoverable volumes of light crude and gas between 1.1 billion and 2 billion barrels of oil equivalent. Hydrocarbons were discovered September 2007 in Carioca and April 2009 in Iguacu.

And that’s only one block in the Santos Basin.

The Tupi field also located in the Santos Basin is considered the largest discovery in the Americas in more than three decades and holds recoverable volumes estimated at 5 to 8 billion barrels of oil equivalent (BOE), according to Petrobras. The Iara reservoir — yup, also in Santos Basin — holds 3 to 4 billion BOE.

Petrobras plans to invest $111.4 billion developing production in the pre-salt area through 2020 with $98.8 billion in the Santos Basin and $12.6 billion in the Espirito Basin.

All of this has created an economic spillover effect, of sorts, much of it benefiting local companies.

Petrobras will hire up to 28 new drilling rigs to be built in Brazil, which will be delivered between 2013 and 2018. The company will launch bids later this month and will likely go to locally manufactured equipment. This local content strategy, as Reuters noted last week, has its fair share of critics, who believe it will force Petrobras to pay higher prices and risks delaying new oil exploration if local shipyards cannot deliver products on time.

Petrobras’ partners Spain’s Repsol and the UK-based BG will certainly see a boost to their bottom lines. And other companies are scrambling to cash in. Here is just a smattering of deals and contracts announced in the past week or so.

• Japanese shipping company NYK Line plans to invest more in floating production vesselsit can offer for lease, according to a Dow Jones report. NYK Line says Petrobras will be its biggest customer in the near term.
• Oil field services company Schlumberger has signed a joint cooperation agreement with the Universidade Federal do Rio de Janeiro to build an international research centerfocused on new technologies to help develop the pre-salt reservoirs offshore Brazil.
• DOF Subseas UKwas awarded a contract by Technip to provide survey and positioning services for the Tupi project in Brazil.
• Subsea 7 was awarded a long-term contract valued at more than $250 millionby Petrobras for its pipelay vessel. Petrobras will use the Normand Seven vessel for four years.