Petrobras outlines future upstream, downstream plans

Peter Howard Wertheim
OGJ Correspondent

RIO DE JANEIRO, Oct. 7 -- Brazilian state-owned oil company Petroleo Brasileiro SA (Petrobras) reported that two recent tests showed light oil on Block BC-60 off the coast of Espírito Santo state, Brazil.

The new discovery of 40-42º gravity oil was made with the company's 1-ESS-130 well, which was drilled on Block BC-60 in the northern part of Campos basin.

Petrobras is currently conducting evaluation studies to determine the economic feasibility of these hydrocarbon accumulations. At present the company cannot determine the precise volumes, however.

Petrobras's president José Eduardo Dutra said that, "technically the area is within Campos basin." Analysts interpret this statement as an indication that the company's tendency is to gradually migrate towards investments in new exploration and production areas due to new discoveries in other basins and excessive taxation by Rio de Janeiro state.

Currently, Campos basin—mostly offshore Rio de Janeiro state—is responsible for roughly 85% of Brazil's total oil output of 1.6 million b/d.

Petrobras's future plans
Block BC-60 has six reservoirs with oil reserves of more than 2 billion bbl, around 20% of total Brazilian reserves, Petrobras's exploration and production director Guilherme Estrella told OGJ. He also added that the company plans to invest more in Espírito Santo, Santos, and Sergipe-Alagoas basins.

During the first half of this year Petrobras announced the discovery of 450 million bbl of light oil in Espírito Santo basin.

However, the bulk of Petrobras's discoveries contain heavy crude, forcing the company to export this product mainly from the giant Marlim field in Campos basin and import light oil to blend with heavy crude to produce more noble oil products such as diesel and petrochemical naphtha.

Estrella said that Petrobras is working towards increasing its present production of light oil from 150,000 b/d to more than 300,000 b/d by 2007. Brazil currently imports about 300,000 b/d of light oil, mainly from Africa's West Coast.

Additional taxes
Besides the need to increase light oil output, Petrobras pays Imposto Sobre Circulação de Mercadorias e Serviços (ICMS, Brazilian excise tax) about 18% over machinery and equipment imported for offshore work, by the so-called Valentim law passed last year by Rio de Janeiro's state legislature.

In addition, last July, Rio de Janeiro's state legislature approved a new ICMS tax, also of 18%, to be charged upon oil production within the state. This law is still to be sanctioned by Gov. Rosinha Garotinho.

Meanwhile, negotiations are taking place among the state government, Petrobras, and Royal/Dutch Shell Group, which also produces oil in Campos basin. The companies are trying to convince the governor not to sanction the law.

As with all oil companies operating in Brazil, Petrobras is heavily taxed for oil production by the federal government. Now Petrobras is facing the possibility of paying ICMS tax over production to Rio de Janeiro's state government.

Pres. Dutra made it clear that Petrobras will not pay this new tax. He pointed out that within the company's strategic plan (2003-07) of $34.3 billion, about $16 billion is for investments in Rio de Janeiro state.

Wagner Victer, Rio de Janeiro's state oil and energy secretary, proposes that an ample reform be undertaken to unify the structure of taxes in the sector.

Double taxation
Petrobras also pays ICMS sales tax in its refineries throughout the country. The company owns 11 of Brazil's 13 refineries. Dutra considers the ICMS double taxation, since the same oil taxed by Rio de Janeiro state government, in production, will be taxed again where it is refined in other states.

The company has been investing in upgrading its refineries, adapting for heavy oil processing to improve oil products quality and increase processing capacity by 215,000 b/d in 2005. When the refineries were constructed, Brazil imported most of its oil from the Middle East (light oil) and now the country imports only 10% of its oil needs.

Petrobras estimates that the Brazilian oil products market will grow 2.7%/year through 2010 and is planning to build a new refinery, the location of which is yet to be determined.

Mines and Energy Minister Dilma Rousseff said that the new refinery is expected to require investments of $2.4 billion with a capacity to process from 150,000-200,000 b/d. She added that the government is open to private sector participation in investments for the new refinery.