BG Group has found yet another oilfield in the deep waters of the Santos basin off Brazil, taking the tally of successful explorations in the region to an unprecedented six out of six.
The Iara well, which lies 2,230m under the South Atlantic and has struck 30 degrees API light crude oil, is one of three drillings in a concession area being explored by a consortium of BG, with 25 per cent, Petrobras, the Brazilian state operator, with 65 per cent, and Galp Energia, with 10 per cent.
The Santos basin is proving enormously fruitful. Since exploration started in 2005, BG has located six fields in as many attempts, and three drillings by other consortia have also been successful. Frank Chapman, the chief executive, said: "The exceptional sequence and scale of our drilling success in this area reflects the world-class status of the pre-salt Santos basin."
The other two finds in the Iara area – called Tupi and Tupi Sul – are thought to contain between 5 and 8 billion barrels of recoverable oil. Some analysts already estimate an Iara reserve of many hundreds of thousands of barrels, although BG is unable to confirm the scale of the find before further drilling and flow testing have taken place. It is difficult to establish exactly how much is down there because Santos oil is in ultra-deep, pre-salt structures, lying not only 2,000m or more under the tempestuous Atlantic ocean, but another 3,000m underground, including a salt layer that obscures traditional seismic imaging.
With such logistical challenges, the economics of deep-water exploration are not simple. "There needs to be big money put in, but there is big money out provided you find a large oil structure," Richard Griffiths, an analyst at Evolution Securities, said.
Exploration costs currently run at around $35 (£18) per barrel, to which must be added development and operating costs, as well as the tax take. "Only big structures can absorb all these costs," Mr Griffiths said. "We are estimating Iara to contain from 500,000 to one billion barrels. But until BG Group can confirm the size of the reserve, it is impossible to put a hard number on the value of the find, and even then it will be all about the timing of when it gets developed."
Despite all the successful finds, no oil has yet been extracted from the Santos basin. But Petrobras, which is involved in all 10 of the area's concessions, is clearly confident. It is currently running 10 deep-water drilling rigs in the area, taking its costs for rigs alone to $5m per day. Initial production from the combined Tupi field is expected to start within the next two years, and the Iara field, which is only 30km away, may be developed as part of the same programme.
High oil prices make more technically challenging projects such as Santos viable, but inflation within the industry still takes its toll. "Rises in the oil price are not accompanied by a proportional rise in oil company profits," Mr Griffiths said. "There is cost inflation in the industry and tax still gobbles up the same percentage as before."
BG Group's shares closed down 1.45 per cent yesterday, despite the news from Brazil, in line with a fall of more than $3 in the oil price.
Santos basin full of rich pickings
The Santos basin, a few hundred kilometres off the coast of Rio de Janeiro, vies with Angola for the title of the world's top hot spot for oil exploration.
So far, there have been nine early-stage drillings in Brazil's deep-water concession area, and all nine have hit the jackpot. BG Goup has been in the region since 2005 and holds seven licences covering an area of 7,450 sq km, with partners including Petrobras, Repsol, Partex and Galp Energia.
BG's consortia have a long list of successes. First, in September 2006, was Parity. Next came Tupi, the following month, which, along with the Tupi Sul field discovered a year later, could contain between 5 and 8 billion barrels of recoverable oil. Also in September 2007 came Carioca, with an estimated 33 billion barrels, followed by Guara in June this year, and finally Iara this week.
The only other area proving so rich in new discoveries is the deep waters off Angola. Since the 1990s, many significant finds have been made. Many are now in production, giving the region a success rate of 60 to 70 per cent.
Sarah ArnottReuse content