Giant Crude Reserve Found in Brazil

Brazil's state oil company Petrobras unveiled on Thursday a giant crude reserve, sending its shares soaring and prompting the government to withdraw 41 oil blocks from an upcoming auction in a bid to keep potential natural resources out of foreign hands.

"This is about preserving the country's sovereignty, while maintaining the auction with areas that are not linked to the discovery," cabinet chief Dilma Rousseff said at a news conference, explaining the decision to pull blocks linked to the find from a concessions auction on Nov. 27-28.

Petrobras (PETR4.SA: Quote, Profile, Research)(PBR.N: Quote, Profile, Research) made Brazil's largest oil find at great depth in the subsalt cluster at the offshore Santos basin field called Tupi. The crude is 28 API grade, unusually light for Brazil. Petrobras said tests allowed it to estimate recoverable reserves of between 5 billion and 8 billion barrels -- about half Brazil's existing proven reserves.

Company officials said commercial production could begin in five to six years. A pilot project should start in 2010 or 2011 with an aim to gradually reach an output of 100,000 barrels per day.

It also made an evaluation of subsalt potential in southern and southeastern basins and said the outlook was promising.

"If confirmed, the recoverable volumes of oil and gas will lift significantly the quantity of existing oil in Brazilian basins, putting Brazil among the countries with big reserves of oil and gas," the company said in a statement.

Rousseff went even further, saying: "We could get to the level of Saudi Arabia and Venezuela."

The subsalt-related blocks excluded from the auction are in the Espirito Santo, Santos and Campos basins, Rousseff said, adding that 271 blocks will still be offered.

The surprise move to pull the blocks from the auction was likely to cool the appetite of big foreign oil companies.

"The auction loses a lot of its appeal, especially for big players. There are still some interesting blocks, but the prime cut was taken out," said Caio Carvalhal, research associate with Cambridge Energy Research Association in Rio de Janeiro.

"The government isn't entirely wrong doing that, but Brazil's image will suffer a bit, especially with the backlash from last year's canceled auction," he said.

Last year's annual sale was called off halfway through due to a court injunction.