Anadarko, Devon Brazil Oil Exploration Success Could Be Short-Lived

RIO DE JANEIRO (Dow Jones)--U.S. oil companies Anadarko Petroleum (APC) and Devon Energy (DVN) have enjoyed a fruitful relationship exploring for oil in Brazil, capped off with a second key discovery Thursday.

The Anadarko-Devon partnership, however, will likely soon be coming to an end. Last month, Oklahoma City-based Devon said that it wanted to divest its international efforts to focus on natural gas projects in the U.S. The sales, expected to be completed in 2010, could generate between $4.5 billion and $7.5 billion in net proceeds.

Anadarko said Thursday that it struck oil for a second time in the subsalt region of Brazil's Campos Basin. The announcement of the find at the Itaipu prospect, combined with the nearby BM-C-30 block's Wahoo and Wahoo 2 finds, should make the company's Brazilian assets more attractive to potential buyers.

Devon holds stakes in seven offshore Brazil exploration blocks, with six holding possible subsalt plays, the company said. The 20 prospects identified containing net unrisked resource potential of 2 billion to 4 billion barrels.

Anadarko has already said that it was interested in buying out partner Devon--but at the right price. Any potential buyers would also have to deal with changes to oil legislation currently under debate in Brazil's congress.

While government officials have pledged to honor existing concession contracts, political disputes over royalties could, in fact, represent changes to contracts involving oil production from the so-called subsalt fields.

The subsalt discoveries were made under a thick layer of salt. The oil lies under more than 2,000 meters of water and a further 5,000 meters under sand, rock and a shifting layer of salt. The primary subsalt region lies in a cluster of blocks in the Santos Basin, off the coasts of Rio de Janeiro and Sao Paulo states.

Thursday's announcement of the Itaipu find represented the second successful discovery Anadarko and Devon have made in the Campos Basin, where more than 85% of Brazil's crude oil is produced.

Itaipu is located in the BM-C-32 block, and the companies found a 240-foot-long column of oil in a reservoir that was 90 feet thick. More important, the reservoir showed similarities to Brazil's first subsalt oil-producing well at the nearby Jubarte field.

Devon operates the block with a 40% share, while Anadarko holds a 33.3% stake. SK Energy holds the remaining 26.7% stake.

The companies plan a sidetrack well and further appraisal drilling at Itaipu in 2010.

Itaipu is about 16 miles north of the Wahoo discovery, which was announced in September 2008. Wahoo is in the Campos Basin's BM-C-30 block. Anadarko is lead operator in the block, with a 30% stake. Devon Energy and EnCana Brasil Petroleo Limitada each hold a 25% share, while SK do Brazil Ltda has a 20% stake.

Anadarko said the consortium was planning a sidetrack at the Wahoo 2 prospect. When the sidetrack is complete, a drillstem test will be conducted at the first Wahoo find. Two additional exploration and appraisal wells are also planned for BM-C-30 in 2010, Anadarko said.

Both the Itaipu and Wahoo discoveries are located near the Jubarte field operated by Brazilian state-run energy giant Petroleo Brasileiro (PBR, PETR4.BR). Jubarte was the site of Brazil's first subsalt oil production in September 2008, when crude was pumped from the 103A well.

While the Campos Basin subsalt prospect don't hold the quantity of oil discovered in the much-ballyhooed Santos Basin, the area does have several advantages. The salt layer is closer to shore and much thinner, and the Campos Basin has a highly developed infrastructure base.