CAPITAL: Brasilia

MONETARY UNIT: Real

REFINING CAPACITY: 1,772,273 b/cd

PRODUCTION: 955,800 b/d

OIL RESERVES: 7.1 billion bbl

GAS RESERVES: 8,039 bcf

Important developments during the year stemmed from privatization of the country`s oil and gas operations.

Brazil began signing up non-Brazilian companies to participate in E&P ventures, and downstream deals also began to come together. The country formally launched its first license round in mid-December.

Petrobras, seeing its 43 year monopoly end, initially maintained a stake in almost all joint projects, but this was unlikely to persist. By the end of third quarter 1998 about 150 projects had been proposed. About 300 companies were reported to have been in negotiations since late 1997.

Upstream developments

Petrobras signed the first domestic upstream joint venture contract with another company in its 45-year history with a group led by YPF SA, the Argentine former state company. The 228,000-acre BES-3 block in shallow water in the Espirito Santo basin 100 km northeast of Vitoria was due first drilling in 2000. Three wells were required.

The group included Santa Fe Energy Resources, Norbay, Petroserv, Sotep, and Wiser Oil of the U.S. Wiser withdrew late in 1998, blaming low oil prices.

A Coastal Corp. group signed an upstream joint venture with Petrobras involving E&P work on the BCAM-2 and BAES-97 blocks in the Camamu basin off Bahia state.

Other joint venture proposals under review in late 1998 involved field development or exploration in the Campos, Santos, Potiguar, Espirito Santo, and Solimoes basins and areas off the Amazon River mouth.

Petrobras meanwhile continued with numerous of its own E&P projects during the year. The Campos basin had 18 floating production systems (FPSs) receiving production from 258 subsea wells via 1,690 km of flexible flow lines, in addition to 14 fixed platforms receiving oil from 185 wells. Goal was to add 13 FPSs to produce from another 215 subsea wells within 2-3 years.

After achieving a world record for deepwater oil production in 1997, at 1,709 m in Marlim Sul oil field, Petrobras was working for a new record, 1,853 m of water, in the Campos basin`s Roncador oil field. Roncador, with 1.3 billion bbl of reserves, was targeted to go on stream by March 1999.

Processing activity

Brazil has 13 refineries, of which 11 belong to Petrobras. The other two private refineries are small and obsolete, built before 1953, when Petrobras was inaugurated as an oil monopoly company.

Germany`s Thyssen Rheinnstahl Technik GmbH won formal approval to build a $1.8 billion, world-class grassroots refinery in northern Brazil. The German conglomerate won ANP approval to build the refinery in Ceara in partnership with the state government.

Argentina`s YPF planned to invest $1.5 billion in Brazil during 1998-2002. YPF started up its first service station in Brazil, in Rio de Janeiro, in October 1998. YPF began shipping Argentine crude to the Manguinhos refinery at Rio, where it planned to expand capacity to 31,900 b/d by 2001 from 10,000 b/d in 1998. YPF held 50% of the refinery.

Transportation

The 280 MMcfd, 3,186 km Bolivia to Brazil gas pipeline under construction generated a spinoff project.

Shell International Gas and Enron International agreed to develop a $500 million natural gas-based power project at Cuiaba in Mato Grosso state. The two firms would jointly develop a gas-fired, combined-cycle power plant at Cuiaba and a 630 km gas pipeline in Bolivia and Brazil to deliver Bolivian gas to the plant.

Brazil in 1998 took steps to become host to continental South America`s first LNG import terminal. Petrobras and Shell Brasil signed an accord setting in motion plans to build an LNG receiving and regasification terminal 30 km south of Recife along Brazil`s northeastern coast by 2003.