Guilherme Estrella found an undersea lake of oil that may transform Brazil’s economy forever. Now, the exploration chief for Petroleo Brasileiro SA is at the center of a debate over who will profit from it.

At stake is how much of Brazil’s newfound riches will be controlled by the state and how much will end up in the pockets of Exxon Mobil Corp., Royal Dutch Shell Plc and other oil companies hungry for new sources of crude. Estrella wants to make Western oil companies little more than hired help for government-controlled Petrobras, as his company is known.

“Petrobras is our space program,” Estrella, a 66-year-old geologist and socialist, said in a Sept. 23 interview in Rio de Janeiro. “Within it, the company contains the Brazilian nationalist spirit.”

A $110 drop in the price of oil since July may make it tougher for Estrella to get his way. Economies around the world are foundering amid the worst financial crisis since the Great Depression, and it may cost $600 billion to develop Brazil’s deepwater oil deposits, which could be worth $3 trillion at current prices.

Estrella has a powerful ally in Brazil President Luiz Inacio Lula da Silva, whom he has known for more than a decade and whose 2002 election victory was partly driven by criticism of the country’s 1997 decision to end Petrobras’s oil monopoly.

Estrella left Petrobras in 1992 after refusing to enact government-mandated job cuts. He moved to the mountain town of Novo Friburgo near his native Rio de Janeiro and became head of the local chapter of the Workers’ Party.

‘Getulista’ Stepfather

Estrella’s stepfather was a “Getulista,” or supporter of nationalist leader Getulio Vargas. Vargas created Petrobras in 1953 with the cry “O Petroleo e Nosso,” which means, “the oil is ours.”

When Vargas committed suicide in 1954 amid calls by the military for his resignation, Estrella remembers his school principal telling students to go home because “something important has happened.” When he got there, he found his stepfather in tears.

Estrella, who got training as a geologist at the University of Brazil in Rio de Janeiro and the University of Texas at Austin, was asked to return to Petrobras when Lula came to power in 2003. He was confident that he could do in Brazil what he had accomplished in Iraq in 1976, when he and his colleagues found the Manjoon field, the world’s 19th-largest.

“We have never accepted that our work would not succeed,” Estrella said. “We know that this is a great country.”

Oil Hunter

Few people have been involved in the discovery of more oil than Estrella, said Gerrard Demaison, a former Chevron Corp. geologist who is president of Capitola, California-based Petroscience2000.

“This guy’s work was prophetic and essential for finding the oil Brazil has today and making Petrobras what it is,” Demaison, 76, said in a telephone interview. “I would put him alongside the great petroleum geologists of the last century.”

Pumping the oil from Brazil’s so-called pre-salt deposits may prove harder than finding the reserves. Much of the crude is located more than 160 miles offshore in waters 2 miles (3.2 kilometers) deep and under a layer of salt. Over the next 20 years, it will cost $600 billion to extract the oil, according to Gustavo Gattass, an analyst at UBS AG in Rio de Janeiro.

That’s why it makes sense to sell more leases to big oil companies, said Delcido Amaral, Estrella’s predecessor at Petrobras and one of his critics.

Tupi Discovery

“If he’d stick to geology, he’d be fine, but I’m afraid his political ideas and those of his allies are going to damage the industry and put the country’s energy future at risk,” said Amaral, now a senator. “We need investment.”

The discovery of the Tupi prospect, which Petrobras said in November 2007 may hold 8 billion barrels of recoverable oil equivalent, was a sensation. Petrobras shares soared 40 percent from the Tupi announcement through May, and the company surpassed Microsoft Corp. and General Electric Co. to become the world’s fifth-largest company by market value, according to data compiled by Bloomberg.

Since May, oil prices collapsed and investors shifted money out of emerging-market stocks, dragging Petrobras down to No. 35 on the list, the Bloomberg data showed. Petrobras, the top performer among the world’s 10 biggest oil stocks in this year’s first five months, has had the biggest decline in the group since then, losing more than half of its market value.

Short of Cash

Irving, Texas-based Exxon Mobil, which had a $39 billion cash hoard as of Sept. 30, has fallen only 13 percent since the end of May. Petrobras, which plans capital spending of more than $22 billion a year, was forced to borrow from a state-owned bank last month because it was short of cash to pay taxes, according to Brazil’s Energy Ministry.

Oil prices must rebound to about $75 a barrel to maintain the investments in petroleum production needed to provide adequate supply to world markets, Energy Minister Edison Lobao said today in an interview in London. Crude futures in New York traded as low as $33.44 this morning, the lowest since 2004.

“Up to this point prices have been tolerated, but below where they are today, the world runs the risk of undersupply,” Lobao said. “We are of the conviction that $75 a barrel is very reasonable.”

Petrobras wasn’t alone in discoveries in the area around Tupi. Reading, England-based BG Group Plc, Galp Energia SGPS SA of Lisbon, Exxon Mobil, The Hague-based Shell and Hess Corp. of New York have leases nearby or stakes in Petrobras blocks.

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