China's Sinopec negotiating first oil exploration deal in Brazil

Chinese state-owned oil company Sinopec is negotiating its first oil exploration and production deal in Brazil with state-controlled Petrobras, an executive of the Brazilian company said.
"Sinopec is interested in having a stake in two exploration blocks to which Petrobras has the rights in the offshore Para-Maranhao basin (in northern Brazil)," Petrobras finance chief Almir Barbassa said in Rio de Janeiro. "We are negotiating giving them a stake in these concessions. It all depends on the evaluations that Sinopec technicians make about the possibilities for prospecting in the region," the Petrobras executive told.

Petrobras, which wants to remain the operator, owns 100 % of the two blocks, Barbassa said, adding that the Brazilian company has more experience than Sinopec in deepwater oil exploration. Sinopec, China's second-largest oil producer, has not invested in oil exploration in Brazil up to now, but it won a contract from Petrobras to construct part of a gas pipeline spanning the SouthAmerican country.
China uses 7.5 mm bpd of oil, making it the world's second-largest consumer of petroleum, trailing only the United States.

Barbassa denied that granting Sinopec stakes in oil exploration projects was a condition of the $ 10 bn loan obtained in May by Petrobras from China. The loan, the largest yet obtained by Petrobras, was arranged with China Development Bank and calls for the Brazilian company to increase its oil sales to Sinopec subsidiary Unipec Asia to 150,000 bpd in 2009 and 200,000 bpd over the following nine years.
"The agreement with China addresses shared interests. China will have in Brazil a new and strong alternative source of petroleum supplies and Petrobras needs the loan to finance its investments in the next few years," Barbassa said.

Petrobras will produce nearly 5.7 mm bpd of petroleum by 2020, while Brazil's consumption will be less than 3 mm bpd, leaving the country with a large surplus that can be exported, the executive said, citing company projections. The company has already secured the resources needed to finance its ambitious 2009-2013 business plan, which calls for $ 174.4 bn in investment, Barbassa said.
"In the first five months of this year, we received nearly $ 31 bn, which is what we need to finance the investment plan. The rest will be guaranteed with our own resources from operations," the executive said.

Besides the $ 10 bn from CDB, Petrobras has obtained a 20-year loan totalling $ 12.5 bn from Brazil's BNDES development bank, a 10-year, $ 2 bn line of credit from the US Export-Import Bank and a bridge loan from several Brazilian and foreign commercial banks for $ 6.5 bn since the beginning of the year. In January, Petrobras released its 2009-2013 business plan, which includes the offshore "pre-salt" reserves, so called because they are located under a thick layer of salt, for the first time.
The discoveries in the pre-salt layer, first announced in late 2007, could eventually lead to a nearly six-fold increase in Brazil's current proven reserves of 14 bn barrels and transform the South American nation into a major oil exporter.

Petrobras's cash flow will continue to be the main source of investment for the company, Barbassa said.
The company, using conservative estimates, says it expects cash flow between 2009 and 2013 could total $ 148.6 bn based on an average price for crude of $ 66 per barrel.