The Minerals Management Service (MMS) last week granted preliminary approval to Petroleo Brasilerio (Petrobras), Brazil’s state-owned oil company, to build the first floating production, storage and offloading (FPSO) facility in the deepwater Gulf of Mexico (GOM).

Petrobras America Inc. President Renato Bertani, speaking at the Deloitte 2006 Oil & Gas Conference in Houston, said the FPSO development plans for the Cascade-Chinook deepwater project have been approved. Cascade and Chinook are located in the Walker Ridge section of the Outer Continental Shelf in water 7,800-9,100 feet deep.

“This is an important benchmark,” Bertani said. “This will be a new solution for the Gulf of Mexico because this would be the very first FPSO. We are now in a position to move in and bring these challenging fields onstream. We are seeing very positive results, and we expect to be ready for operation by 2009.” Petrobras is one of the leading FPSO builders in the world.

The MMS said it has given preliminary approval to the FPSO concept, but the project still requires additional clearances before it may move forward.

FPSOs produce, store and offload oil into tankers for transport. They are designed to be moved out of the way of approaching storms, which would be an advantage in the Gulf of Mexico. MMS released a final environmental impact statement on the potential use of FPSOs in the Central and Western Gulf of Mexico in February 2001, and a decision to allow FPSOs as a programmatic decision was made by MMS in early 2002. However, it has not yet granted approval of any FPSOs in U.S. waters.

Petrobras said it initially plans to have least two Cascade wells and at least one Chinook well be completed and brought onstream through an FPSO. Subsequent wells and facilities would be designed in accordance with the initial production results.

Petrobras America, Devon Energy Inc. and BHP Billiton discovered the Cascade accumulation in 2002 (see NGI, June 10, 2002). The nearby Chinook discovery was made in 2003. Last August, BHP sold its stake in the discoveries, giving Petrobras and Devon 50-50 stakes in Cascade and giving Petrobras a 75% stake in Chinook (see NGI, Aug. 21). Petrobras also is operator of both blocks.

Also last week, Houston-based Mariner Energy Inc. sold back a 20% stake in the GOM Cottonwood project to Petrobras for $31.8 million. Mariner acquired an interest in the project, which is located in Garden Banks Block 244, in April 2005 from Petrobras. Cottonwood is located 240 miles southwest of New Orleans in a water depth of 2,300 feet. Mariner acquired its interest in the project under an arrangement whereby Mariner allowed Petrobras access to the deepwater rig Noble Lorris Bouzigard, which Mariner has under long-term contract. Mariner has participated with Petrobras in two sidetrack wells since acquiring its interest. Petrobras owns the remaining interest and is operator of the project.

Petrobras, Brazil’s state-owned oil company, announced the Cottonwood discovery in September 2005 (see Daily GPI, Sept. 22, 2005).

Bertani said he expects his company to have more transactions with North American producers as it expands its presence.

“We are expanding in the United States, both upstream and downstream,” said Bertani. “We are back in the shallow water of the Gulf of Mexico, and we’re engaged in some deep gas plays. In the Western Gulf of Mexico, we’re looking at some new concepts there. We’ll continue our expansion there, certainly.”

Bertani said, “Outside of Brazil, our current biggest projects are in the Gulf of Mexico.”

“We are pleased to have had the opportunity to work with Petrobras and hope they continue to achieve positive results in this project,” said Mariner CEO Scott D. Josey. “This transaction represents a successful example of our efforts to leverage our deepwater drilling rig contracts to create high-quality investment opportunities.”

The sale was completed effective Nov. 1, and it will result in a pretax gain to Mariner of $22 million in 4Q2006. As a result of the sale, Mariner will not be required to fund $21 million of the development costs necessary to establish the first project, currently expected to happen in 1Q2007. Mariner’s capital spending for this year, which was previously expected to range between $525 million and $545 million, is now expected to range between $504 million and $524 million, excluding hurricane repairs, acquisitions and dispositions.

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