Brazil confident of Libra oil field success By Wyre Davies

Rio de Janeiro correspondent Published duration 19 October 2013

media caption Wyre Davies flies over the Libra Field

"Pre-Salt". A term that hardly anyone outside oil industry would have ever heard of and, even if they had, it holds few clues as to what it really is.

But those two incongruous, single-syllable words hold the key to Brazil's hopes of becoming a major oil producer, securing billions of dollars in revenue and helping to boost a faltering economy.

Not far off the coast of Rio de Janeiro State, and just to the north east of the famous coastal city is the area in question.

It is an almost unimaginably large oil deposit; 1,500 sq km (579 sq miles) and 326m (1,070ft) deep. Although it lies well beneath the sea bed, under a thick layer of rock and salt, the find is said to be relatively risk-free. Estimates vary but it could hold as many as 12bn barrels of oil.

The find has been called "Libra" and Brazil is about to auction off the rights to develop the site, with some pretty tight strings attached.

Magda Chambriard is the Director General of Brazil's National Oil Agency. For her it's a win-win situation.

media caption Danilo Funke, vice-mayor of Macae, gives the BBC a tour of a community not yet helped by Brazil's oil boom

We discussed Libra and its implications for Brazil as a global oil producer, in her Rio de Janeiro headquarters. She dismissed, with a wry smile, suggestions the country didn't have the experience or infrastructure to cope with such a huge undertaking as the development of the Libra field.

"Everything is very well planned. There are new platforms, new pipelines, more infrastructure," said the woman who trained as an oil engineer but is now one of the most powerful figures in the industry.

"Everything here in Brazil is happening in the correct way so we are very confident that everything will be OK."

Just to the north of Rio de Janeiro, the once small fishing village of Macae is the closest land point to the offshore fields.

It's not quite El Dorado but property prices here are already among the highest in the country and these days the noise of helicopters ferrying workers out to the existing rigs is much louder than the chug of fishing boats around the mangroves.

Realising the urgent need for able workers if Brazil is to make the most of its impending oil boom, the local authority here is training hundreds of people to work on the rigs. Many are migrant workers from other parts of Brazil, like 32 year-old Claudia, who is learning to be a skilled welder.

"Where I'm from, up in Bahia, sadly there's no work - it's all down here," Claudia tells me.

"The training lasts three to four months and I'm now in the final stages. But it's free and I'm actually working in the company where I expect to get a job."

image caption The oil boom may well change the fortunes of many coastal communities

According to Claudia at least half of the people in her own north-eastern village have made the long journey south, hoping for a well-paid job, like hers, in the oil sector.

When the bidding process for the Libra auction was announced, there was considerable surprise that several major oil producers, including BP, the BG Group, Exxon and Chevron, decided not to enter.

All are involved quite heavily in other parts of Brazil's diverse energy sector but many analysts say the high proportion of profits being demanded by the Brazilian government and strict conditions of the lease had persuaded some companies to turn their backs on Libra.

Brazil has made it clear it expects to keep somewhere in the region of 70% of the profits from the Libra field.

Whoever wins the bidding will certainly be looking at long, not short-term returns as developing the find will require at least $200bn (£123bn). Oh, and there's a one-off, up-front bonus payment of $5bn to the Brazilian government in return for winning the auction as well.

Nonetheless, there are hundreds of small and medium foreign firms doing very well on the back of Brazil's oil boom. Companies like the British-owned Swire Group, which has plenty of offshore experience in other deep-water environments, specialises in providing containers and cabling for the industry.

Swire now employs about 50 people at its plant in Macae. They will soon be moving to new, bigger premises on the other side of town and hope to increase their workforce four-fold in the next five years.

"You have to approach this from a Brazilian perspective," says Marcelo Nacif, Swire's local general manager.

media caption The Swire Group's Marcelo Nacif demonstrates a container converted to an office

"You have to have local people who understand the culture and the bureaucracy and you have to adapt."

The bottom line, says Mr Nacif, is that specialist companies like his have to go where the oil is and, for now, that's Brazil.

"The North Sea is on the down side, right?" he asks rhetorically.

"Every day there's less oil, less gas there so if those companies don't look at South America and Africa in the future their business is going to shrink."

There is still a highly protectionist and barrier-driven nature to doing business in Brazil and some here object to the involvement of foreign businesses, in any way whatsoever, in the Libra bidding process.

Workers from Brazil's state-run oil company, Petrobras, have just gone out on strike over the issue and their demand for bigger salaries.

But, say many analysts, their arguments are difficult to comprehend. Brazil just doesn't have the capacity or ability to develop Libra on its own, certainly not to its full potential. Furthermore, under the straight-jacket Brazil is forcing the winning bidder to wear, is a stipulation that Petrobras must share 30% of the new venture and be allowed to operate all of the rigs in the new field.

Oil has always proved to be a blessing and a curse. On the impoverished fringes of Macae, only 10% of the residents have basic sewage facilities, crime is rampant but some improvements are finally being made to people's lives by the local authority.