Brazil's Petrobras Has Global Ambitions

( Los Angeles Times ) - For most of Latin America's state oil companies, these are hardly halcyon days: Although high global prices have lifted revenue, crude oil production is either in decline or moving sideways.

Then there's Brazil's go-go Petrobras.

The company has doubled its oil output over the past decade to 2.2 million barrels a day and joined the ranks of the world's major producers. Petrobras' deep-water discoveries off Brazil's coast, such as the Tupi oil field announced in November, plus aggressive energy exploration around the world -- from the U.S. Gulf Coast to West Africa, Turkey and here in Colombia -- have captured investors' attention.

So what's the secret behind its success? Analysts say the Brazilian government's decision to open the company up to outside investors, to break its monopoly on the nation's oil fields and to push the company to develop deep-water drilling technology were critical to its growth. But the company's adventuresome spirit is also paying dividends.

Petrobras' Campo Guando oil field here in the rugged Andes foothills 70 miles southwest of Bogota is a case in point. Despite daunting logistics, difficult geology and the presence of leftist rebels, Petrobras has quietly developed Campo Guando, Colombia's biggest new field since 2000.

The field's average daily production of 30,000 barrels -- just 1.4 percent of Petrobras' total output -- is less significant than the doggedness with which it has approached a site that a previous owner, a British company called Lasmo Oil, deemed too difficult.

"The geology was complicated, the oil was very deep, there wasn't enough water with which to re-inject the field, and at first there wasn't even a pipeline," said Nestor Aguirre, the Guando oil field's production manager. "We overcame all that."

In addition to Colombia, Petrobras has a presence in more than 25 countries. But not all of Petrobras' Colombian ventures have paid off. A $135 million crapshoot at its Tayrona Block off the Caribbean coast came up snake eyes late last year, when the deep-water exploratory well it was drilling in partnership with Exxon and the former Colombian oil monopoly Ecopetrol turned out to be a dry hole.

"It's disappointing but a part of the business," Petrobras Colombian President Dirceu Abrahao said in an interview in Bogota, the Colombian capital. He said it took drilling nine wells before Petrobras made its first oil discovery in Brazil's offshore Campos Basin, which is now the company's most important field.

The risk-taking is emblematic of Petrobras, which decades ago decided to focus not just on developing domestic sources of oil but also on foreign projects as a means of hedging its energy bets.

The initiative dates from the early 1970s, when Brazil, dependent on oil imports for two- thirds of its energy, got clobbered by the global oil shock. Soon after, the country mandated a conversion to ethanol as an alternative fuel for cars, and now motorists fill their tanks with more sugar-based alcohol than gasoline.

Petrobras recently announced that it would invest $115 billion in projects at home and abroad through 2012, with 10 percent going to foreign projects. Worldwide, the company has 11.5 billion barrels of proven reserves. But if Tupi pans out, reserves could increase by 50 percent or more, although it will take four or five years for production at Tupi to begin.

The international strategy is in sharp contrast to the region's other state-owned giants, Venezuela's PDVSA and Mexico's Pemex. In recent years each cash cow has been milked by their governments to fund government programs, leaving little for investment in oil exploration and new technology.

Although revenue is increasing thanks to the rise in oil prices worldwide, production is in decline or treading water in Venezuela, Mexico and Ecuador.

At the same time, Petrobras' oil output has risen to 2.2 million barrels a day from half that a decade ago. The growth trend is expected to continue. The International Energy Agency in Paris projects that Brazil will add more new production in 2008 than any other non-OPEC nation.

"If you compare Petrobras with other Latin oil companies, it is by far the most dynamic and efficient," said Ricardo Amorim, emerging-markets specialist with the West LB investment bank in New York.

Foreign oil projects now provide 10 percent of Petrobras' output, but the share soon could increase. A recent find in Nigeria could add another 100,000 barrels a day to the company's international oil output, said Decio Oddone da Costa, executive manager of Petrobras' southern cone operations, in a recent interview at the company's headquarters in Rio de Janeiro.

Petrobras also is a player in oil exploration off the U.S. Gulf Coast, where it installed the industry's first floating drilling platform. Unknown to many in the industry is that Petrobras has 356 employees at its U.S. headquarters in Houston. It is producing only 20,000 barrels a day in the Gulf but has hopes of more. It has leased 388 offshore sites from the U.S. government where it may drill.

"There are definitely positive signs," said Fadel Gheit, energy analyst at Oppenheimer & Co. in New York, speaking generally about Petrobras' prospects. But he cautioned: "Just because you bought a lottery ticket doesn't mean you will win or get rich."

Petrobras shares have soared in recent years. In 2002, the company's market capitalization was $15 billion. Now it's much more than $200 billion.

Given Petrobras' foreign projects, combined with big new oil and gas finds in the Tupi area of Brazil's offshore Santos Basin, the country has a good shot at attaining its goal of surpassing Venezuela and Mexico to become the biggest Latin American oil producer by 2012, with 3.5 million barrels of average daily output worldwide.

"We want to be one of the top five oil companies in the world by then," Oddone da Costa said.

Petrobras was once the monopoly of the Brazilian government but in the 1990s began selling shares to outside investors after Brazil decided to open up the company to foreign money. The government retains a 55 percent stake.

At the same time, Brazil set up an independent agency to award exploration rights, making Petrobras theoretically just another competitor in the oil patch along with foreign companies. Petrobras also is a major natural gas producer with its holdings in Bolivia, as well as a refiner. It is spending $7 billion on a new refinery in the northeast state of Pernambuco in partnership with PDVSA, the Venezuelan state company.

Its success in deep water, drilling wells as far down as four miles to extract oil in the Campos Basin, has become the stuff of industry legend.

Faced with declining production at its Cantarel offshore oil field in the Gulf of Campeche, Mexico approached Petrobras about helping it drill deeper there. But Petrobras declined, because Mexico wouldn't share the reserves or production that Petrobras might find; it just wanted its technology.

"We're not a services company," Oddone da Costa said. "We are an oil company, trying to become larger and larger by discovering and producing oil anywhere we can."

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