Brazil Field Puts Shell in a Good Spot

By GUY CHAZAN Royal Dutch Shell PLC is the latest in a small group of Western energy companies pumping crude out of Brazil amid intensifying international interest in the country's deepwater oil reserves. The official launch of Shell's BC-10 oil field Tuesday, off Brazil's southeast coast, comes as the country prepares to approve long-awaited laws on how to regulate its subsalt reserves, a vast resource that has emerged as a kind of El Dorado for the global energy industry. Brazil has been seen as one of the most promising new oil sources ever since the massive Tupi field was discovered under a thick layer of salt in the offshore Santos Basin two years ago. More finds have followed, and it is thought the area could contain tens of billions of barrels of oil. View Full Image Shell The production and storage infrastructure aboard Shell's Espirito Santo at the BC-10 block off Brazil as interest intensifies in the nation's oil reserves. Marvin Odum, director of Upstream Americas at Shell, said he believes BC-10, which is not in the subsalt, should open up more opportunities in Brazil. "I think the government will be pleased with what we're doing there," Mr. Odum said in an interview. But observers said it is unlikely Shell will be able to expand its presence in the subsalt beyond the three exploration licenses it already holds. Several other Western oil companies had licenses for the subsalt area before Tupi was found, but Brazil said it won't grant more licenses until it has established new laws regulating the area. The laws are expected to reinforce the role of the national oil company Petroleo Brasileiro SA, or Petrobras, in opening up areas like the Santos Basin. They are also likely to channel Brazil's bonanza from the new fields into a new state fund aimed at lifting millions of Brazilians out of poverty. Mr. Odum said there was a "significant degree of uncertainty" regarding how Brazil's deepwater resource would be developed. But he denied that oil companies like Shell are frustrated at the government's slow pace. The important thing isn't the timing, Mr. Odum said, but "making sure they develop a system that's globally competitive and that will attract investment." Since Brazil opened its oil sector to foreign energy companies in the late 1990s, only a few have found oilfields and successfully brought them onstream. In June, a joint venture between Chevron Corp. and Petrobras produced the first oil from the offshore Frade field. Shell started pumping crude at BC-10 in July, but the field will be commissioned officially Tuesday. BC-10 is another example of how the international oil companies are beginning to make an impact on oil exploration and production in Brazil, said Ruaraidh Montgomery, an analyst at the oil consultancy Wood Mackenzie. In 2008, he said, foreign oil companies accounted for less than 5% of hydrocarbon liquids production in Brazil. That will rise to just under 20% by 2015, he said. But it hasn't been easy for Big Oil in Brazil. British natural gas producer BG Group PLC said Tuesday that testing on a well it and Petrobras drilled in deep water offshore Brazil didn't confirm hydrocarbons, despite signs of natural gas during drilling. It was the second high-profile failure in the subsalt in as many months: In July, Exxon Mobil Corp. and Hess Corp. also announced a dry well at the Guarani prospect. With BC-10, also known as Parque das Conchas, Shell has scored a number of industry firsts. Oil and gas produced at the field will be separated on the seabed, rather than on a rig or onshore. It will then be driven up nearly 6,000 feet to the surface using electric submersible pumps, each with the horsepower of a Formula 1 car engine. —Jeff Fick contributed to this article. Write to Guy Chazan at guy.chazan@wsj.com