Why BP is betting billions that God is Brazilian

By Rowena Mason 642AM GMT twelve March 2010

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Previous of Images Next Brazil"s President Lula da Silva at the coronation of Petrobras"s Euzebio Rocha Thermoeletric Plant in Cubatao this week President Lula at the opening of a floating oil storage height in the Campos Basin off the seashore of Brazil in 2006 Employees of Petrobras travel on height 51 "Majuro" in Angra dos Reis, Brazil, where poignant amounts of oil have been found.

Since he spoken this loquacious interjection for Brazil"s great hydrocarbon fortune, the oil majors have been jostling with the inhabitant association Petrobras for a splinter of the excitement.

The country"s largest fields are ripping with up to 13bn proven barrels of the black stuff, but it is the unproven intensity of the Campos and Santos basins offshore that meant Brazil"s contentment of oil could proceed that of Russia and Saudi Arabia

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It is thus no warn that BP"s arch executive, Tony Hayward, has selected the Campos dish for his greatest merger since receiving the helm roughly 3 years ago.

He forsaken a integrate of hints last month to investors when suggesting that BP thought the Brazilian marketplace opportunities were "plentiful" and that his seductiveness lay in appropriation resources rather than complete companies.

Focus at that point was on either the super-major would collect up a little fields from Repsol or even have a fool around for British path-finder BG Group, that has a remunerative seductiveness in the hulk Tupi field.

But the preference of Devon Energy"s resources was hailed by analysts as a great vital move, if an costly one, notwithstanding a pale greeting from the marketplace with BP"s share cost unchanged.

"There"s no disbelief it"s positively key in conditions of removing a feet in the doorway in Brazil," says Malcolm Graham-Wood, executive of oil and gas broking at Westhouse Securities. "The blocks are not outrageous but it"s unequivocally critical for BP to be piece of the pack."

It is expected that BP will be wanting to obey the success in the Gulf of Mexico, where it is apropos an consultant in unequivocally deepwater drilling.

The $7bn (�4.6bn) understanding additionally gives BP an additional 240 leases in this budding area, together with a 30pc seductiveness in the Kaskida field, in that it already owns 70pc.

Adding serve to the Eurasian portfolio, BP gets an increasing seductiveness in the Azerbaijan oil plan and the good of marked down bearing to the politically-sensitive connect sands, alternate a 50pc seductiveness and handling shortcoming for the asleep Kirby margin on to Devon for $500m.

However, it is the valuables of Brazil"s offshore fields 3,000 to 5,000 metres underneath the sea that has held City interest.

It is not utterly as low the 7,850 metres of Thunderhorse in the US bay, but still represents an feat to reach a salt covering subsequent the seabed with a record that has usually been pioneered inside of the last decade.

Digging the drills in to the Brazilian pre-salt dish is expected to reduce a little concerns about BP"s prolongation pipeline, that analysts have disturbed does not compare Shell"s adventurousness.

BP is superfluous tight-lipped on how most the merger will supplement to the prolongation reserves, as it manoeuvres to say the slight lead over ExxonMobil carrying overtaken the world"s greatest association in outlay last year.

But accord estimates put the illusive boost over the subsequent 2-5 years range in between 40,000 and 100,000 barrels of oil per day. ICAP estimated that BP has paid for 140m barrels and analysts at Morgan Stanley foresee 160m, whilst ING guesses that recoverable pot could in the future reach 800m.

"The understanding is unequivocally about what prolongation will be in place in 7 or eight years" time. We"re shopping intensity to supplement value. It"s unequivocally poignant since that the prior greatest understanding finished by BP was probably the TNK-BP corner try behind in 2003," pronounced a BP spokesman.

A integrate of City observers on Thursday uttered concerns about the cost paid by the oil company, observant that BP paid towards the unequivocally tip finish of Devon"s $4.5-$7.5bn tag.

James Neale, an researcher at Credit Suisse, forked out that the "price seems high at initial glance", whilst ICAP pronounced the cost looked "steep".

But they note that piece of the worth in the Brazilian fields is their untapped nature, adding that the knowledge of the understanding depends on "the worth of the non-proven resources and the unlocking of worth at Kirby that is not easy evaluate".

"All in all, it"s an intensely shrewd move that bears all the fingerprints of Tony Hayward," says one investment bank analyst. "It"s crafty and gaunt not a outrageous selfish understanding swallowing up a relaxed association that you saw in the old BP days."