Brazil's largest integrated oil and gas company combines technology with integration into society.

Petrobras' green and yellow 'BR' logo is blooming. It can be seen along Brazil's coast and across the country's vast interior on famous beaches such as Ipanema and in more modest spots inland. Arguably Latin America's largest production company, Petrobras shows statistics capable of rivaling super-majors. It has 7,000 gas stations, 9,000 producing wells, and 11 billion boe in reserves.

In an exclusive interview with Hart's E&P, Guilherme Estrella, the company's exploration and production director, offers insight to Petrobras operations on its 50th birthday.

Hart's E&P: What has this time brought?

Estrella: For Petrobras the clearest achievement has been the technological evolution from onshore production to deep and ultradeep waters. Since 1984 Petrobras has made important discoveries in deep and ultradeep waters in the Campos Basin. These include the Albacora, Marlim, Marlim Sul, Marlim Leste, Barracuda, Caratinga, Espadarte and Roncador fields. Since 1999, discoveries have taken place in the Santos and Espírito Santo Basins. Today the deepest producing well stands in waters of 6,158 ft (1,877m). This would not have been possible without technology supplied by our R&D center CENPES.
For Brazil, this time has seen Petrobras integrate and participate fully in Brazilian society. In the early days, educational, environmental protection and social programs were developed in Brazil alone. But as the company internationalized, these programs were expanded to the host countries within which Petrobras operates. In this regard, we do not expect things to change and as large tankers take some time to change course, it is better not to have brusque changes of direction.

Hart's E&P: What is your view of the Brazilian state owning Petrobras?

Estrella: In a very real sense Petrobras can be considered Brazilian 'patrimonio,' which is a Portuguese term for 'family inheritance.' It reflects the Brazilian state's ownership of Petrobras and the fact that the company is being managed for future generations in a sustainable manner. Petrobras demonstrates this by reinvesting profits into the community and training young locals, investing in their future. Not just here in Brazil, but in all the countries where Petrobras operates.

Hart's E&P: Isn't there a contradiction between Petrobras' social agenda and enterprise?

Estrella: No. If we compare Petrobras' approach toward social reform and business with that of international oil companies (IOCs) there are many similarities. Successful IOCs mirror the same values of sustainable development as Petrobras, and indeed other national oil companies (NOCs) hold. The social investment programs and attitude toward building long term stable social frameworks is the same. BP, Shell or ChevronTexaco recognize the importance of social responsibility and local content. With certain IOCs, returns are not limited to shareholders. Local communities benefit too. So why should things be different for Petrobras?

The Brazilian government is tackling the social tragedy that Brazil faces. As the federal government retains a majority holding in Petrobras it is only to be expected that Petrobras will play a proportional part. And due to Petrobras' huge presence our contribution is of course huge - US $100 million to help 4 million people out of hunger. Petrobras operates 9,520 miles (15,330 km) of pipelines, 14 refineries, owns 59 tankers and charters a further 56. Petrobras is not only involved in E&P, refining, distribution and marketing of petroleum and other derivatives, but it is also Brazil's largest business. It contributes to the creation of wealth and professionals. Petrobras's recorded profits of $3.3 billion in the first quarter 2003 helped satisfy the appetite of the 'leao' - Brazil's tax authority.

The markets tend to agree that there is no contradiction between social responsibility and enterprise. If you had bought $100 of Petrobras shares in 1998 that investment would be worth $210 today.

Hart's E&P: You have been quoted as saying 'people before profit' - what are the implications of this?
Estrella: In order to face the challenges that E&P faces we need to keep creating professionals and developing technology. Unfortunately, some companies look solely at short-term financials. Our vision must encompass more. Petrobras cannot lose sight of the long-term, nor the wider context within which it operates. We must strike a balance between social reform and profitability. Our responsibilities to Brazil are broad ranging. We are playing a part in eradicating hunger, providing education for future generations, stimulating national industry and, whenever possible, helping the community. Exemplifying this are the 200 sweet water wells drilled in arid parts of northern Brazil. Some of these wells struck water, but rather than plug and abandon them the infrastructure was installed to take advantage of the water. Further, Petrobras is acting to recover drilled wells to supply water to 27,000 inhabitants. The professional training project has developed 30,000 young people between the ages of 16 and 21.

Hart's E&P: What has been the role of CENPES in supporting deepwater evolution?

Estrella: CENPES is a technology greenhouse. It is the largest research and development center in Latin America and using the science of innovation it provides firsts and pushes technology fronts. CENPES has developed a raft of upstream and downstream technologies varying from early production systems to fuel derivatives. Petrobras is the official supplier of racing car fuel for the BMW Williams Formula 1 (team). The science of innovation involves differentiating and understanding the components that form know-how. That science is integrated with operational safety. CENPES has a tradition of co-operating and partnering with Brazilian and international institutions to ensure the most advanced technology is at Petrobras' disposal.

Hart's E&P: What are the major technology fronts?

Estrella: E&P and enhanced recovery in deep and ultradeep waters rank among the most important. Over 70% of Petrobras oil and gas reserves lie in deep or ultradeep waters with production reaching 65%. To increase national production, Petrobras needs to produce its fields in deep and ultradeep waters. By 2006, we plan to reach self-sufficiency by producing 2.1 million b/d of oil in Brazil and with deep and ultradeep waters supplying 75% of this.

Today's deepwater production is a result of the direction taken 20 years ago. The latest phase of deepwater technology is the PROCAP 3000 program supporting E & P in the deeper waters of the Roncador and Marlim fields that reach 9,843 ft (3,000 m) water depth. However, there are massive areas of unexplored ultra deep waters. These need to be characterized and this requires heavy investment. We are improving our understanding of reservoir characteristics and have commissioned new
3-D and 4-D seismic surveys to complement the knowledge that we already have.

Cost reduction is another important area. Our deepwater lifting costs are comparable with IOCs, but opportunities for cost reduction can still be identified. Equally important is the revitalization of mature fields through better reservoir management and new technology. We can increase production by deepening existing wells or by drilling laterals to access pockets of stranded oil and gas.

Heavy oil has always played an important part in Brazil and recent discoveries such as Jubarte and Cachalote confirm the need for longer and larger boreholes to ensure maximum production. Despite a predominantly tropical climate, the deeper waters of Brazil exhibit temperatures and currents comparable to those encountered in the North Sea and Gulf of Mexico. Apart from this harsh environment, nearly 80% of Brazilian deepwater crude production is waxy, necessitating flow assurance techniques. Marlim for example produces 620,000 b/d of 19? crude. These are difficulties that are being overcome by different technologies. Again, Petrobras' partnerships with service companies and in-house programs are meeting the challenge. For example, a novel way of assuring flow in deep water is through the use of heated pipe-in-pipe techniques. There are a variety of technologies being developed under the PROPES heavy oil program in CENPES.

Hart's E&P: What part does natural gas play in the E&P strategy?

Estrella: Gas reserves have increased dramatically. In light of the discovery of 2.8 Tcf (80 Bcm) of natural gas reserves in the Santos basin our strategy has changed. We are working on the necessary production infrastructure to transport gas to the consumer and industrial markets located in the state of Sao Paolo. There are 20 million inhabitants and over 60% of Brazil's industry is located in this area.

Petrobras has an interest in liquefied natural gas (LNG) projects. We are undertaking a pilot LNG scheme, which will identify future direction. We will pick the most promising processes and assess their applicability to Brazil. The LNG market is set to change as natural gas becomes a tradable commodity. Containerized gas will enable unprecedented transport and distribution. Petrobras is undertaking a liquid-to-gas conversion program, which may also stimulate natural gas demand.

Hart's E&P: What are the implications of the goal of self-sufficiency for 2006?

Estrella: There are obvious financial benefits for Brazil as it moves from dependence to independence. Self-sufficiency means that the country will not need to buy 200,000 b/d of oil. National production has grown steadily over the past 5 years from 1 million to 1.5 million bbl/d. Reserves have increased from 8.8 billion to 11.0 billion boe.

For Petrobras and Brazil self-sufficiency is an emblematic and inescapable goal. Wrapped up with it is Brazil's sense of self esteem. It will be a historic milestone.