Exxon Mobil (NYSE:XOM)
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Exxon Mobil Corp. (XOM) said Friday it is abandoning its only exploration effort in the Santos Basin, epicenter of Brazil's offshore oil boom, an area where it has obtained mixed results amid tough drilling conditions.
The block is the Texas behemoth's sole exploration lease in Brazil, which forecasters say is destined to be one of the world's top petroleum producers by the end of the decade thanks to its vast trove of offshore oil and gas.
Exxon and its partners, Hess Corp. (HES) and Petroleo Brasileiro S.A. (PBR), "have agreed to relinquish" the BS-M-22 block in Brazil's Santos Basin, spokesman Pat McGinn told Dow Jones Newswires. The block is located in the thick of Brazil's burgeoning offshore oil industry, near some of the largest oil discoveries in recent memory, and was leased under terms that are more favorable to foreign investors than those spelled out in recent regulation.
Exxon, which is celebrating 100 years in the South American country this year, "will continue to look for new business opportunities in Brazil," McGinn said.
McGinn said the local regulator, Agencia Nacional do Petroleo, or ANP, was notified in the first week of April.
The BS-M-22 block proved a hard nut to crack for Exxon and its partners, underscoring the difficulty of developing Brazil's massive offshore reserves, most of which lie beneath deeply buried, thick layers of salt.
Two wells drilled there, Azulao-1 and Sabia-1, struck oil, but another well, dubbed Guarani, turned out to be dry. A typical deep-water well in the area can cost tens of millions of dollars, and Deutsche Bank once estimated that the Guarani well cost about $150 million.
Phil Weiss, an analyst with Argus Research, said the block "has been kind of disappointing so far." While the recognition that the block's resources are out of reach is an "incremental negative" for the companies, at least they won't keep engaging in risky, expensive exploration there, Weiss said.
Last October, Exxon and its partners had sought to bring in a new partner into the block to share the risk of drilling a new well there, offering a 25% stake. A brochure for the stake said that the prospect was estimated to contain up to 1.5 billion barrels of recoverable oil.
Block BM-S-22 is located about 350 kilometers south of Rio de Janeiro.
Exxon, the world's largest publicly traded oil company, has a 40% interest in the block. Hess has 40% and Petrobras 20%. Exxon is the block's operator.
-By Angel Gonzalez, Dow Jones Newswires; 713-547-9214; email@example.com