By Stephen Eisenhammer, Senior Contributing Reporter
RIO DE JANEIRO, BRAZIL – Petrobras, the Brazilian state-run energy giant, has found “good quality” oil in a well in the pre-salt Santos basin, offshore Brazil, the company announced on Friday (June 8th). The oil was found in the third well Petrobras has drilled in the Sul de Guará area, a pre-salt cluster in the Sapinhoá Field, located 320 kilometers off the coast of São Paulo state.
The tip of the reservoir was pierced at a depth of 2,202 meters. The well is being drilled to an impressive 5,058 meters (3.14 miles) in order to determine the lower limit of the reservoir, Petrobras said in a statement.
Petrobras added that oil samples would now go through a “formation test” to “evaluate the productivity of the oil reservoirs.”
The discovery comes at an important time for Petrobras, with market pressure building on the back of slow production gains despite spiraling investments. However, what the markets are really looking for is monthly record production figures, which are yet to materialize.
Domestic oil production dropped for the third consecutive month in April, down by 1.6 percent on the previous month to an average 1.961 million barrels a day, according to figures released by Petrobras on Friday, June 8th.
Petrobras CFO, Almir Barbassa, recently told reporters that the tipping point is approaching when consistent production gains will emerge. He added that the company’s new 2012-2016 strategy plan, expected to be released in August, will mark a shift of focus towards production and away from exploration.
However, notably, no particular time frame was given and analysts are beginning to get nervous about sluggish growth with Brazil’s “local content rules” increasingly attracting criticism. The rules set out by former President Lula require Petrobras needs to purchase as much as seventy percent of its equipment from domestic suppliers.
Critics argue that it is inherently inefficient, resulting in supply bottlenecks and overpriced services. However, figures for Rio de Janeiro’s forecast investments over the next couple of years, released last week, show exactly why Brazil is pursuing this challenging route.
According to the local state secretary for economic development, Julio Bueno, the state of Rio de Janeiro is set to invest R$211.5 billion (US$104 billion) by 2014, a 67.5 percent increase on the sum spent between 2010 and 2012.
The majority of this increase is linked to the oil industry, Bueno explained. “Rio de Janeiro is experiencing a virtuous circle. The oil attracts the shipping industry, which attracts the ship makers, which attracts the metal workers, which increases wages, which encourages people to consume more,” he said.
This is the grand motive of the local content rule, an attempt to build an entire economy on the pre-salt oil find, the largest discovery of the millennium so far, with estimated reserves of between 30 and 50 billion barrels of oil equivalent. It is a risky strategy, which sees Petrobras leveraged to the hilt and rising criticisms of government interference and nationalistic protectionism circulating.