Repsol Weighs Brazil Options

Spain’s Repsol YPF SA is considering listing part of its Brazilian unit or seeking a partner to develop a series of new oil discoveries in a promising oil region in Brazil, Repsol Chairman Antonio Brufau said over the weekend.

Speaking at a news conference in Rio de Janeirohere, Mr. Brufau said Repsol is studying “whether it needs to search for an ally” to finance the investment needed to move from the discovery to the production stage for these oil finds. Other than a stock-market listing, another option is asset swaps with other oil companies, Mr. Brufau said, although he didn’t specify potential partners.

Once considered a sleepy Spanish oil company with no oil, Repsol over the past few years has announced a series of new discoveries. Today, it holds significant stakes in oil blocks in the subsalt region of Brazil’s Santos Basin, where several of the world’s largest oil and natural-gas discoveries have been made in recent years.

Brazil’s subsalt reserves are buried under a thick layer of salt miles below the ocean floor that shifts under geological pressure, making the reserves expensive to develop.

Other private oil companies would be “very, very interested” in getting hold of any acreage in the region, according to Jason Kenney, an oil analyst at ING Bank, of the Netherlands.

One of Repsol’s recent discoveries is the giant Guara discovery, which Repsol and its partners Petroleo Brasileiro SA, or Petrobras, and BG Group PLC estimate hold as many as two billion barrels of oil equivalent in recoverable hydrocarbon reserves. Another, the nearby Carioca find, holds an estimated 765 million barrels of oil equivalent, Repsol Exploration and Production Director Nemesio Cuesta said this weekend.

Currently, most of the stakes in exploration and production blocks of the subsalt area are in the hands of Brazil’s state-run oil company, Petrobras. Until 2007, only a few foreign oil companies—including Repsol—had bid in government auctions for shares in exploration areas containing the subsalt area.

The area was considered a frontier region where there was a high risk of incurring losses during exploration.

After Petrobras in late 2007 said estimated recoverable reserves at its Tupi subsalt discovery could reach eight billion barrels of oil equivalent, the enormous potential of the new oil region became clear. But the Brazilian government stopped the licensing of any further areas in the region.

Brazil’s Congress is currently debating government proposals that would revise the regulatory framework for the oil and gas sector, and allow foreign companies into new, yet-unlicensed parts of the subsalt only in production-sharing contracts and not as owners of those resources.

Repsol says the cost of developing its Brazilian subsalt fields will depend on long-term production tests that still need to be carried out.

The cost is likely to surpass $10 billion within the next 10 to 12 years, Mr. Brufau said.

“Whether it will be $14 billion, or $10 billion, or $18 billion, is premature” to tell, he added.

Another option for Repsol would be to finance its stake in the subsalt developments by reaching a deal with Petrobras, which isRepsol’s partner in most of the recent oil finds, Mr. Brufau said. He didn’t specify what form such an agreement could take.

Petrobras Chief Executive Sergio Gabrielli this weekend didn’t comment on any possible deal.