BG Strikes Oil in Santos Basin off Brazil Coast

BG strikes oil in Santos Basin off Brazil coast BG Group has made a "material" new oil discovery at its Iara well in Brazil's subsalt reserves, its sixth-straight success in the deep water Santos Basin since drilling began, the British gas producer said on Friday.

BG shares rose 3 percent to 1137 pence, following the announcement, after earlier rising to a 1144 pence peak.

Geologists say Brazil's subsalt reserves, which span an area from the Santos Basin in the south to the Campos and Espirito Santos basins up the coast, could exceed 70 billion barrels -- more than OPEC members such as Libya.

Last November, Petrobras announced a recoverable reserve estimate for Tupi, the first well in the BM-S-11 area where Iara lies, of 5-8 billion barrels of oil equivalent which if confirmed, would make it the world's biggest deepwater find.

Iara is only around 30 kilometres northwest of Tupi but considerably smaller, which suggests a resource base of half-a-billion to 1 billion barrels of oil equivalent (BOE) compared to the 8-12 billion BOE for Tupi, Evolution Securities analyst Richard Griffith said in a note.

"It's too early to be precise on the value of Iara," he said, leaving unchanged his 1600 pence price target and Buy recommendation.

"We are delighted to report another material discovery with Iara," Chief Executive Frank Chapman said in the statement.

"The exceptional sequence and scale of our drilling success in this area reflects the world class status of the pre-salt Santos Basin, to which BG Group has substantial exposure." Brazil's Petrobras has a 65 percent interest in the concession area where Iara lies.

BG has a 25 percent stake and Galp Energia, a 10 percent stake.

Guilherme Estrella, head of exploration and production at Petrobras, said last month he expected that subsalt oil finds in the Santos Basin are interconnected, and companies involved in various separate subsalt oil finds would have to work together.

In addition to Petrobras, BG and Portugal's Galp, ExxonMobil, Hess Corp, Petrogal, Spain's Repsol and Royal Dutch Shell are all involved in the region.

BG shares are up 41 percent in a year, outperforming the FTSE All Share Oil and Gas Index by the same margin.

Iara lies 230 kilometers (143 miles) off the coast of Rio de Janeiro.