Brazil subsalt oil project receives Chinese funding

RIO DE JANEIRO, Nov. 6 (UPI) -- Brazil's gigantic subsalt oil exploration and development project has received a $10 billion cash boost from China at the same time as the Chinese state oil company has bought its first oil asset in the United States.

In the clearest indication yet that China is intent upon building up its energy portfolio in the Americas, Petrobras and Norway's Statoil have welcomed Chinese partnership in lucrative oil projects that guarantee China an assured supply over the coming decades.

Brazil's Petrobras oil and gas group said it signed a contract permitting the first payment from a $10 billion Chinese loan. The government-managed group said the funding would be used to help it finance undersea exploration and development in an area said to contain huge reserves of oil and gas.

The 10-year contract for $10 billion financing by the China Development Bank Corp. follows negotiations begun in May 2009, China's Xinhua news agency said. China's interest in the subsalt oil reserves was first mentioned in the summer, but news of progress on the talks remained scant throughout.

Petrobras said the funding marks a new stage for relations between developing countries' markets. When news of the huge subsalt oil discoveries first broke last year, Brazil indicated it was not interested in partnerships with Big Oil and would seek to develop the fields through its own resources.

The loan contract will be followed by a long-term agreement between Petrobras and UNIPEC Asia, a subsidiary of China Petroleum and Chemical Corp. Sinopec expects to secure delivery of 150,000 barrels of oil a day in the first year, and 200,000 barrels in the nine subsequent years. The subsalt oil is not due to come on stream for some time, suggesting China in the initial stages will lift oil produced elsewhere in Brazil.

Despite the size of the Chinese loan, it represents a small part of the $174 billion Petrobras plans to spend within the next four years.

Analysts said this suggests Brazil may be conducting negotiations elsewhere to raise additional financing for the subsalt exploration project.

Brazil is currently awash in cash but has opted to spread the risk by enticing foreign partners it can work with on its own terms.

The Brazilian Congress is currently busy overhauling the country's oil legislation to give the government greater control over the new offshore reserves. Brazil is unlikely to enter into deals that will require it to cede control on its reserves.

Development of the oil fields could entail investment of up to $400 billion but also transform Brazil into one of the world's major oil exporters. Brazil's foreign reserves totaled $232.9 billion at the end of October, up from $224.2 billion at the end of September, but new state spending is also being channeled into military and social welfare projects.

A new bill before Congress would create a fund to ensure oil revenues go into education, healthcare and environmental cleanup. Chinese exporters have set their sights on the potential for exports to Brazil of a wide range of equipment, as well as expertise and technology transfers.

In the United States, China National Offshore Oil Corp. made small gains with the acquisition of equity in four deepwater exploitation licenses in the Gulf of Mexico. It was the first Chinese acquisition after the debacle of an unsuccessful Chinese bid for U.S. energy firm Unocal. The $18.5 billion CNOOC bid was withdrawn amid U.S. reservations over the sale of strategic assets to China.

Analysts said the Chinese could still begin making deeper inroads into U.S. energy markets because they appeared poised to part with cash where other investors stayed away.