02/21/2012 05:25 pm ET Updated Apr 10, 2012

Petrobras Strikes Oil in Western Brazil -- Bye Bye Amazon?

It depends how one defines "good" news.

Last week Brazilian state-controlled oil company Petrobras announced that it had struck good-quality light oil in its Amazonas state's Solimoes Basin SOL-T-171 concession block, which it owns 100 percent.

In a market filing Petrobras reported that the onshore discovery in the Jurua Formation could produce 1,400 barrels per day (bpd) of light weight, 41-degree API oil, as well as 45,000 cubic meters per day (tcmpd) of natural gas.

The discovery occurred at the drilling of Petrobras' well 1-BRSA-961-AM, unofficially known as Igarape Chibata Leste. Located in Coari, the 1-BRSA-961-AM well was sunk to a final depth of two miles.

This is Petrobras' second successful exploration in its Block SOL-T-171 Amazonas concession bloc.

Since 2010 Petrobras has been working its Discovery Evaluation Plan with well 1-BRSA-769-AM, known informally as Igarape Chibata, which is located 15 miles from the Brazil's so-called Urucu "oil province."

For those cheering energy development over ecology, Petrobras currently produces 53,000 bpd of crude oil, 11 million cmpd of natural gas and 1,300 tons per day (tpd) of liquid petroleum gas LPG) in Amazonas.

If the economic viability of the Petrobras findings is confirmed, there will be a new oil and natural gas production cluster developed in the Solimoes Basin.

Interest in Amazonas' energy possibilities dates back more than five decades to 1959, when L. G. Morales at the 5th World Petroleum Congress in New York delivered his paper, "General Geology and Oil Possibilities of the Amazonas Basin, Brazil."

Discoveries in the Solimoes Basin have also fueled the rise of Brazilian local onshore exploration start-up HRT Participacoes em Petroleo Brasil SA, a rarity where Petrobras still dominates the oil industry.

HRT Participacoes em Petroleo Brasil SA raised $1.5 billion in a 2010 stock offering, leaving investors thirsty for more. In January 2011 HRT Participacoes em Petroleo Brasil SA Chief Executive Officer Marcio Mello told the media that the Brazilian Amazon may hold "super giant" fields of light oil in an area the country is starting to explore and that the company would start producing from its wells in the Amazon's Solimoes river basin as early as June, as HRT was on schedule to begin drilling in February and expected to reach an oil reservoir in May in its 21 exploration blocks in the Solimoes Basin. Mello gushed, "The oil at Solimoes is the best in the whole of South America. The Amazon is a completely unexplored frontier. The Amazon is one of the last frontiers in the whole world where you can find giant and super giant oil and gas fields. It has a third of all the gas in Brazil."

Mello's boosterism aside, sad to say, HRT Participacoes em Petroleo Brasil SA's dreams of an Amazon superfield failed to materialize, and so the company agreed in October 2011 to cash out half its investments and sell a 45 percent stake in its 21 Amazon Solimoes Basin oil blocs to Anglo-Russian TNK-BP for $1 billion.

Why the Russian interest?

Simple -- the contract represents a step forward in TNK-BP's expansion plans beyond the Russian Federation, where the government of Prime Minister Vladimir Putin has sharply curbed private energy company access to the state's promising offshore areas.

Which brings us back to square one -- the possible costs of drilling in the Amazon.

In August 2011 Petrobras announced plans to invest $224.7 billion in increasing production through 2015, more than any other major oil producer in the world, as it develops some of the world's largest discoveries in three decades outside of the Caspian basin in its southern Atlantic offshore fields. Petrobras, in 2011 producing 2 million barrels per day (bpd), has set a target of 6 million bpd production by 2020. Petrobras CEO Jose Sergio Gabrielli de Azevedo told journalists his belief that Petrobras, with a market value of $217 billion, would overtake ExxonMobil, worth $389 billion, as the world's largest energy company by as early as 2016, noting, "It depends on the speed of the others, but we are growing faster than Exxon, than Total, than Gazprom, than Shell, than Chevron, than ConocoPhillips. If you look at the numbers, by 2016 or 2017."

It is time for the Brazilian government to take a long and dispassionate look at the oil production in the Solimas Basin. If the Petrobras projections are correct, then within eight years Brazil will be out-producing OPEC's second-largest exporter Iran, whose current production is roughly 4.5 million bpd. In such a context, is ramping up production in Amazonas from its current level of 5,300 bpd worth the potential environmental damage it could inflict?

The Amazon is a unique biosystem, whose global impact is only beginning to be understood.

There are certain areas of the world worth preserving as they are. The Grand Canyon, Central Park, France's Loire Valley, Germany's Rhine river basin, the Nile -- would it be worth opening these up for a paltry 5,300 bpd?

If Petrobras accomplishes its projected production by 2020, then perhaps it can buy out HRT Participacoes em Petroleo Brasil and put aside its own Amazonas concessions to create an Amazonian "Central Park do Sul."

Given Petrobras' enlightened stewardship of the Brazilian environment up to now, such a prospect is not beyond the realm of possibility, especially given the relatively minor amounts of oil involved.

There is only one Amazon, after all, just as New York City has only one Central Park.

Quality of life issue.

John C.K Daly is the chief analyst at the energy news site Dr. Daly received his Ph.D. in 1986 from the School of Slavonic and East European Studies, University of London.

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