Escape Route: Brazilian Oil Field Will Limit Repsol's Exposure to Argentina

The Guara field in Brazil's Santos Basin may not be the panacea to Repsol YPF's"Argentina" problem. Still, the Guara field's better-than-expected oil estimates promise to provide a powerful boost to the Spanish company's reserves and ultimately limit its exposure to Argentina.

Repsol's Argentine arm YPF has faltered in recent years as the country's increasing nationalism has created economic, political and regulatory problems. For the past two years, YPF earnings have suffered from caps placed on oil prices.

Repsol, which owns 84 percent of YPF, has been trying to sell off all or at least part of its stake in the company and shift its revenues to other countries with more promising oil fields.

Enter Brazil.

Recent tests of the Guara field found recoverable volumes of light crude and gas of between 1.1 billion and 2 billion barrels of oil equivalent.

Repsol, along with its partners, Brazil's state-owned Petrobras and BG Group, discovered the field in July 2008 and released its initial production test estimates late Tuesday. The Guara field is located in the Santos Basin, a large pre-salt region located in the deep waters offshore Brazil.

The well's initial production is expected to be about 50,000 barrels of oil per day. The consortium of partners announced Wednesday it will install a floating production, storage and offloading vessel to produce 120,000 barrels of oil equivalent per day, which would make it the second producing field in the Santos Basin, Repsol said in a statement.

Repsol only holds a 25 percent stake in Guara, compared to Petrobras' 45 percent and BG's 30 percent ownership. On its own, the field may not be a game-changer for Repsol.

But Guara isn't Repsol's only Brazilian oil endeavor. The company has exploration rights in 21 blocks, 11 of which are Repsol-operated, in the Santos, Campos and Espiritu Santo basins offshore Brazil.

Repsol's proved reserves at the end of 2008 were 2.21 billion barrels of oil equivalent. The largest percentage of reserves are in Argentina with 25 percent, followed by Trinidad and Tobago with 22 percent of its proved reserves. Seventeen percent is located in the rest of the South American countries, 7 percent in Algeria and Libya and 2 percent in the Gulf of Mexico, according to the company's annual report.