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RIO DE JANEIRO (Reuters) - A drilling campaign off Brazil's northeastern coast shows that an area controlled by Petrobras and an Indian partner likely holds more than a billion barrels of oil, government and industry officials told Reuters, bolstering hopes that the region will soon become the country's biggest new oil frontier.
Petroleo Brasileiro SA (PETR4.SA), as Brazil's state-run oil company is formally known, and IBV Brasil, a 50-50 joint venture between India's Bharat Petroleum Corp (BPCL) (BPCL.NS) and Videocon Industries Ltd (VEDI.NS), have determined the SEAL-11 exploration block contains very large amounts of high-quality light crude oil and natural gas, according to five government and industry sources with direct knowledge of the drilling results.
The SEAL-11 block and adjacent areas, 100 kilometers (62 miles) off the coast of the Brazilian state of Sergipe, may hold more than 3 billion barrels of oil in place, according to two of the sources. If confirmed, that would make the block - owned 60 percent by Petrobras and 40 percent by IBV - one of the biggest global discoveries of the year.
Petrobras has been betting that the waters off Sergipe hold large quantities of oil and gas since it bought rights to drill in the area a decade ago. As the block's operator, Petrobras has registered finds in the area with Brazilian regulators in recent years as required by law, but has yet to announce estimates of the potential size of the resource. The latest drilling makes clear how large the find may be, the sources said.
The area, where Petrobras is now drilling evaluation wells, also offers the chance to boost Brazilian output with resources that are cheaper and easier to drill than the country's giant deepwater "subsalt" reserves more than 1,500 kilometers to the south. First production from SEAL-11 and adjacent areas is expected in 2018, Petrobras said in a statement.
"Sergipe, without a doubt, has great potential and excellent perspectives," a Brazilian government official with direct knowledge of Petrobras and IBV's discoveries and development plans told Reuters. "I would say that Sergipe is the best area in Brazil in terms of perspective after the subsalt."
The subsalt is the name given to a series of oil reserves trapped far beneath the seabed under a layer of salt south of Rio de Janeiro in the Campos and Santos basins.
The Sergipe estimates and outlooks shared with Reuters are based on at least 10 oil and gas strikes in seven wells reported to Brazil's petroleum regulator, the ANP, since June 16, 2011.
In an emailed response to questions, Petrobras declined to say how much oil they believe is in SEAL-11 and adjacent blocks, but said 16 wells drilled in the Sergipe deep-water area since 2008 have found several oil accumulations "that comprise a new petroleum province in the region."
The exact numbers will only be known once appraisal plans are completed sometime in 2015, a BPCL source in India said on condition of anonymity. Some industry experts worry the tests could take longer because Petrobras is currently burdened with other giant investments and is struggling to raise money.
The BPCL source said that SEAL-11 likely has between 1 billion and 2 billion barrels of "oil in place," a term than includes unrecoverable resources as well as those that can be economically produced. That amount may rise when resources in adjacent blocks are included.
If the area proves to have 3 billion barrels or more in place, it could ultimately produce 1 billion barrels based on Brazilian recovery rates of 25 percent to 30 percent of oil in place, a Brazil-based oil industry expert with direct knowledge of the drilling program said.
Petrobras and its partners continue to drill in the area and have asked the ANP to approve eight discovery evaluation plans for the offshore region, the last step before a field is declared commercially viable.
In addition to SEAL-11, Petrobras has made at least eight strikes in the neighboring SEAL-10 block, which it owns by itself, and two more strikes in the nearby SEAL-4 block, owned 75 percent by Petrobras and 25 percent by India's Oil & Natural Gas Corp (ONGC.NS), according to ANP data.
Strikes do not necessarily indicate the discovery of commercial quantities of oil or gas. All oil and gas found while drilling, however insignificant, must be reported to the ANP.
Petrobras' reluctance to estimate reserves at the Sergipe field is not unusual in the oil industry, where many companies will only confirm reserve estimates after extensive drilling.
That is in contrast to Brazil's eagerness to tout the super-giant Libra area in the Santos Basin. In May the ANP said Libra has 8 billion to 12 billion barrels of recoverable oil based on the drilling of a single well. The government plans to auction production rights for Libra, Brazil's biggest-ever oil discovery, on October 21.
If the Sergipe find is confirmed, the oil and gas found in SEAL-11 could become Brazil's first "super-giant," or billion-barrel-plus discovery, outside of the subsalt region where Libra is located.
Recent drilling also suggests that a giant natural gas field may extend well beyond SEAL-11 with enough gas to supply all of Brazil's current needs "for decades," one of the sources said.
Even if recoverable volumes in Sergipe fall in the "giant" category, or in the hundreds of millions of barrels, the area would still be the first major offshore find in Brazil's Northeast, one of the country's poorest regions.
"The discovery is very large and if developed would transform the economy of our state and the region," Jose de Oliveira Junior, sub-secretary for sustainable energy development for Sergipe's government, told Reuters.
Oliveira Junior said he was unable to give an estimate of the size of resources in SEAL-11, but that they were so large that Petrobras told the government that it will probably be unable to consider developing the area for about six years.
Government officials in Sergipe are anxious to develop the area quickly. While oil has long been produced in the state, mostly on shore, current volumes are small. Monthly output in Sergipe is less than Brazil's biggest fields produce in hours.
The fruits of the find, though, may take years to trickle down to shareholders and Sergipe residents, even though its proximity to shore, higher quality oil and less complex reservoirs suggest it would be cheaper to develop per barrel than the giant subsalt fields further south, the sources said.
Trapped in connected reservoirs in porous and permeable rock, the light oil should be relatively easy to coax from the earth compared with the subsalt where the oil is heavier and trapped in denser rocks, an industry source said.
Additional reporting by Rodrigo Viga Gaier in Rio de Janeiro, Prashant Mehra in Mumbai and Nidhi Verma in New Delhi; Editing by Todd Benson, Leslie Gevirtz, Krista Hughes and Jonathan Leff