Brazilian state-run energy company Petrobras (PBR) should begin drilling in the subsalt layer off the coast of Bahia state by the end of the year, the Estado news agency reported late Monday.

"The well we were drilling previously did not go beyond the salt layer because of mechanical problems. We should undertake new drilling in the coming months," said Guilherme Estrella, Petrobras director for prospecting and production.

The subsalt area has estimated reserves of between 5 billion and 8 billion barrels of oil, the largest discovery in the Americas in more than 30 years.

The subsalt layer covers an area of 149,000 square kilometers and stretches mainly from the coast of Santa Catarina in southern Brazil to Espirito Santo, the state immediately north of Rio de Janeiro.

If oil is discovered in southern Bahia then the oil-bearing area may prove much larger.

The offshore well will be drilled in the Jequitinhonha Basin. The Jequitinhonha River forms the state border between Espirito Santo and Bahia.

The well will be in block BM-J-3, which Petrobras is developing in partnership with Norway's StatoilHydro ASA (STO).

-By John Kolodziejski, Dow Jones Newswires; 55-21-2586-6086; john.kolodziejski@dowjones.com