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Petrobras Buys Into Lucrative Australian Upstream Sector
15 April 2010

Petrobras, Brazil's state-backed oil industry major has used its purchasing power to break its way into the Australian upstream sector, through a 50% acquisition of MEO Australia's offshore Carnarvon Basin block, WA-360-P. For the South American behemoth, the deal marks a relatively cheap entry into the highly-lucrative Australian gas and liquefied natural gas (LNG) markets. For the target, MEO, the entry of Petrobras provides it with the technically proficient and skilled offshore partner that it was looking for on the project.

The offshore block covers 1,215 square kilometers of acreage off of Australia's north-western coast, in water between 100 and 800 metres deep. The block is situated adjacent to the producing North West Shelf Gas Project fields. The first well, Artemis-1, will test the Artemis prospect which MEO believes may hold reserves of up to 340 billion cubic metres, which the company says could support a stand-alone LNG project.

Under the terms of the agreement, the Brazilian firm will acquire a 50% stake for an upfront payment of $39 million and exploration-related capital expenditures (capex) of up to $41 million on the first well, Artemis-1. In sum, the initial deal is worth combined $80 million.

Moreover, if the first well leads to a successful discovery, Petrobras is obliged to put up MEO's share of the costs up to $62 million on the drilling of two additional wells. Petrobras is also set to pay a $31.5 million cash bonus in January of next year. MEO will remain operator during the drilling of the first well but Petrobras will have the option to take up the reigns of operatorship as the additional well projects develop.

Should sizeable recoverable reserves be found at the block, it is thought that they will feed into a stand-alone LNG export terminal, or provide for a supply deal to a third-party of one of Australia's plethora of upcoming LNG projects.

If the WA-360-P lives up to its hype in terms of production, it may well provide adequate flow to MEO's planned LNG terminal, the Timor Sea LNG Project for years to come. The Project is set to be built at Tassie Shoal, situated off the coast of Australia's Northern Territory.