NOVEMBER 4, 2009
From: The Wall Street Journal
Development of Brazil's massive offshore oil discoveries has attracted most of the industry's attention in recent years, but the seemingly forgotten onshore prospects caught the eye of geologist Marcio Mello.
"There's a great movement in Brazil not only offshore but also onshore ... the Amazon and Solimoes basins are open," said Mello, CEO of upstart HRT Oil & Gas.
Mello and several former executives at state-run energy giant Petrobras (PBR) launched HRT Oil & Gas on Wednesday, the second major Brazilian independent oil company to be launched since the offshore discoveries were made in 2007.
OGX Petroleo e Gas Participacoes SA (OGXP3.BR), owned by billionaire entrepreneur Eike Batista, was started in 2007 with 6.7 billion Brazilian reals ($3.59 billion) raised in Brazil's then-largest initial public offering of shares.
"It's always a geologist's dream to start an oil company," Mello said. Mello is also president of HRT Petroleum, an oilfield consultancy. "Everyone always asked me why we didn't start an oil company. I thought if one day the opportunity came and the company could be born big--with enough capital to start--it could happen."
The opportunity came when HRT Petroleum was hired to do analysis work of blocks in the Solimoes Basin by Petra Energia SA and M&S Brasil.
Unlike OGX, which is betting heavily on shallow-water offshore prospects, HRT will focus solely on the relatively virgin territory in the Amazon rainforest.
HRT will hold operator stakes in 21 blocks in the Solimoes Basin in Brazil's Amazonas state. The company signed the arm-in deals to buy a 51% stake in the blocks from Petra Energia and M&S Brasil.
The blocks contain potential reserves of between four billion and six billion barrels of light oil and between 10 trillion and 20 trillion cubic feet of natural gas, Mello said.
"The potential is enormous," Mello said. "Amazonas is going to be the largest producer of natural gas in Brazil."
Mello noted that the area is home to Brazil's largest producing field of light oil, the Urucu field operated by Petrobras. Urucu produces about 47,000 barrels of oil a day.
HRT plans to start drilling by the middle of next year, with between four and six rigs on site by June or July. Operations Director Antonio Agostini said negotiations for the rigs were already under way, with the first two drilling units expected in Brazil by May or June.
"I think we'll produce the first oil before the end of the first year," Mello said.
Mello's bold outlook for the company is backed up by the financial commitment from private investors. HRT will be controlled by holding company HRT Participacoes em Petroleo S/A, funded with $275 million raised in a private placement in the U.S. The operation was coordinated by Bank of Montreal.
Demand was strong enough that the company could have raised a total of between $500 million and $600 million, HRT executives said.
But the company wanted to limit the private placement to $275 million at this early stage, CFO Eduardo Teixeira said. That should be sufficient to fund the company's investment plans for the next two to three years.
"We don't have any interest in raising funds from the market for at least the next two years," Teixeira said.
The company also plans an initial public offering of shares, which Teixeira called "a natural evolution" for oil companies, but not in the near term.