Business Week - 10 Sep 09

Prof. Robert B. Laughlin
Department of Physics
Stanford University, Stanford, CA 94305
(Copied 9 Jan 10)

BG's Brazil Oil Find Could Dwarf Rival's

BG Group says its Guara oil and gas field may hold 2 billion barrels, far exceeding the "giant" Gulf of Mexico find announced a week earlier by BP

By Sarah Arnott
September 10, 2009

BG Group's Guara discovery off the Brazilian coast contains up to 2 billion barrels of recoverable oil and gas, dwarfing last week's "giant" find by rival BP.

Recent drill stem testing produced a flow of 7,200 barrels of oil equivalent (boe) per day, although permanent production using full-scale facilities could raise the rate to up to 50,000 boe per day, BG Group said yesterday.

BG Group and its partners on Guara—Brazil's Petrobras and Spain's Repsol —have agreed a production schedule, which is due to start from 2012 at a rate of 120,000 bpd. The company's nearby Tupi well is expected to go into production at the end of next year, at a rate of 100,000 boe per day.

Frank Chapman, the chief executive of BG Group, said: "The well test results on Guara were excellent and underscore again the outstanding potential in BG Group's extensive position in the world-class Santos Basin. It is clear that the Santos Basin pre-salt will make a very material contribution to the production and cash flow of BG Group for many years to come."

It is one of several finds in the Santos Basin, off the coast of Rio de Janiero—one of the world's most technically difficult sources of oil. The region's hydrocarbons are so-called "sub-salt", which means they lie 3,000m underground below a layer of salt. Above the rock is another 2,000m of the inhospitable Atlantic Ocean.

But Santos is also the oil and gas industry's current star turn. BG has had a string of successes in the region, including massive finds at Iara, Carioca, Tupi and Tupi Sul. The latter two are estimated to hold between 12 and 30 billion boe, although "only" between 5 and 8 billion are thought to be recoverable. The Carioca field holds an estimated 33 billion barrels.

The news on Guara sent BG Group's shares rocketing by nearly 4 per cent to close at 1095p. Malcolm Graham-Wood, the director of HansonWesthouse, said: "This is much better than had been expected: it adds a significant amount to our valuation and the cash flow is sooner and better than might have been expected. Longer term, BG Group remains one of the outstanding investment opportunities in the sector and indeed the market."

The news on Guara puts BP's "giant" discovery in the Gulf of Mexico last week into the shade. Although the Tiber Prospect find is expected to hold up to 3 billion boe, as little as 20 per cent is expected to be extractable. Although the Gulf of Mexico does not have the difficult salt layer, it is still a tricky proposition. The Tiber well is one of the world's deepest, drilling 11,000m into the seabed through another 1,000m of water.

The discovery of Guara was first announced in June last year, one of eight successful strikes in the Santos Basin. But Brazil is not BG's only success story. At the end of last year the company also revised its gross reserve estimates for West Franklin in the North Sea upwards, and the discovery of the Jordbaer reserve in Norway is seen as a strategic opener for other analogous prospects in the area.

The gas business is also growing fast. BG Group paid A$995m (£519m) for Pure Energy Resources, an Australian coal seam gas player, earlier this year, to add to last year's A$5.2bn Queensland Gas Company acquisition. Both deals are intended to help BG break into the Asian liquefied natural gas market.