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  HOME | Oil & Energy (Click here for more)

China, U.A.E. Offer to Fund Brazil Oil Drilling
China wants to start with $10 billion.

RIO DE JANEIRO -- China and the United Arab Emirates have offered Brazil resources to fund production from its huge offshore oil fields, Energy Minister Edisao Lobao said in an interview published Monday by the daily Folha de Sao Paulo.

"China is offering Petrobras $10 billion initially," Lobao said in response to a question about the Brazilian state-controlled oil company's investment plans amid the global credit crisis.

"We also received a representative of a prince in the (United) Arab Emirates, which also want to invest in Petrobras," the energy minister said.

Lobao said that to fund Petrobras's investment plans and pay for production from the pre-salt layer, Brazil has "several other alternatives," such as domestic loans, foreign loans, the government budget and the "possibility of using part of the country's foreign exchange reserves," which are estimated at around $207 billion.

In late 2007, Petrobras announced that it had found what could be the world's largest oil field, called Tupi, in the Santos basin, but the reserves are under the pre-salt layer, which is found beneath the sea bottom and contains a gel-like deposit of salt that could be up to two kilometers (1.24 miles) deep.

Reaching petroleum in such fields requires drilling down to the ocean floor and then through the salt layer, making such projects expensive and technologically challenging.

The offshore fields contain some 14 billion barrels of crude, according to Petrobras estimates, making them the new frontier in the oil industry.

The ANP, Brazil's energy industry regulatory agency, estimates that the fields that have been put up for bidding could contain between 50 billion and 80 billion barrels of crude, well above the country's existing reserves of 14 billion barrels.

The offshore fields are at depths of up to 7,000 meters (22,950 feet).

China made its offer in talks with Petrobras attended by Energy Ministry representatives, Lobao said, adding that the funds would be destined for the company's investment plans and development of the pre-salt layer.

"If they made a demand like that (selling China part of the oil produced in the fields), it's reasonable. Regardless, we have to have somebody to sell it to," Lobao said.

The energy minister said development of the pre-salt layer was not profitable if oil fell below $30 per barrel, but he said he doubted the price of crude would drop to that level.

"But I don't share that theory. It's practically impossible. All you need is for producers to reduce output, which is easy," Lobao said.

"A drop to less than $30 a barrel makes it negative (the viability of developing the pre-salt layer). How much does it cost to produce oil in Brazil today? Something along the lines of $20 a barrel. If it falls below that, it would produce losses. Since no one wants to lose (money), producers just have to reduce production," the energy minister said.

Lobao said the government would probably announce its plans this week for developing the fields under the pre-salt layer.

He said one option was to create a new state-owned company, separate from Petrobras, to develop the offshore fields that have not yet been put up for bidding.

Though state-controlled, Petrobras is a public company whose shares trade on the Sao Paulo, New York, Madrid and Buenos Aires stock exchanges, meaning that Brasilia would gain more from having a distinct, wholly state-owned firm hold the rights to the offshore fields.

Petrobras, an integrated energy company and the global leader in deepwater oil exploration and production, operates in 27 countries in the Americas, Africa, Asia and Europe.

"Creation of a state-owned company is, perhaps, the proposal that, in my opinion, has the most support," Lobao said.

Click here to see reports on the initial discoveries in the pre-salt fields.

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