Brazil Petrobras Doubles Spending On Deep-Water Presalt Fields

Brazilian energy giant Petroleo Brasileiro SA will more than double spending in the Santos Basin over the next five years as work at the ultradeep-water offshore fields enters the pricier development phase.

Petrobras, as the state-owned company is known, said late Friday that it had presented the company’s board with its latest master plan for the Santos Basin fields, dubbed Plansal. The firm plans to spend about $54 billion through 2015 to accelerate crude-oil output at the fields it operates, a jump from the $22.1 billion forecast in the company’s 2010-2014 strategic plan.

The total spending is estimated at $73 billion when including the share of investments from partners Royal Dutch Shell PLC, BG Group PLC, Repsol YPF SA, Galp Energia SGPS SA and Partex, Petrobras said.

The latest investment figures give an indication of how much Petrobras’s planning has been emboldened by the recent surge in international oil prices and the ample stash of cash the federal company squeezed from its $70 billion share offer last year, the world’s largest-ever share sale.

Petrobras shrugged off lower oil prices and technical concerns in the wake of the accident last year at a BP PLC well in the U.S. Gulf of Mexico to announce an ambitious $224 billion investment plan for 2010-2014. Analysts now expect an even bigger investment budget for the 2011-2015 period when Petrobras announces its latest five-year strategic plan, expected later this month.

“The strategic plan will add another year, and with this the Santos Basin pre-salt will advance a year and enter a more capital-intensive phase,” said Nelson Rodrigues de Matos, an analyst at Rio de Janeiro investment bank BB Investimentos.

Exploration and development of Brazil’s so-called presalt region was always expected to be pricey and technically complex. The fields sit hundreds of kilometers off the coast of Sao Paulo and Rio de Janeiro states, under more than two kilometers of water and more than five kilometers under the seabed.

Initial exploration wells cost about $200 million to complete, some of the most expensive offshore wells ever drilled.

But now some of the fields are entering the development stage as extended well tests and pilot programs begin, requiring construction of floating production, storage and offloading vessels, or FPSOs.

Last year, pilot production at the Lula field, formerly called Tupi, started. Last week, Petrobras began an extended well at the Lula Northeast field, while an extended well test at Guara will start in coming months.

“In 2015 and beyond, we’ll see a greater volume of development investments. That always requires more spending than the exploration phase,” Mr. Matos said.

While spending is expected to rise dramatically in coming years, Petrobras indicated that it is gleaning knowledge that will allow it to increase productivity and cut costs. Petrobras said that expected crude-oil output in 2015 increased by 108,000 barrels a day to 613,000 barrels a day. The company also said it expects to surpass its one million-barrel-a-day target for 2017.

The latest presalt production estimates easily best the forecast made as part of Petrobras’s 2010-2014 strategic plan. Petrobras estimated presalt output of 241,000 barrels a day by 2014, with that total rising to 1.078 million barrels a day by 2020.

“The productivity of the wells is greater than they imagined,” Mr. Matos said, calling the productivity gains “very positive.”

Some analysts, however, preferred to wait for the release of the broader 2011-2015 strategic plan before evaluating Petrobras’s investments.

“In principal, I don’t see any big changes,” said Marco Saravale, an analyst at Sao Paulo brokerage house Coinvalores. “But I’ll wait to see the full five-year plan.” The company’s next five-year investment plan should include important guidance on how Petrobras expects to finance its projects, as well as an important breakdown on investments in specific segments such as exploration, production and downstream, Mr. Saravale said.