New Find Fuels Speculation
Brazil Will Be a Power in Oil
By JOHN LYONS and DAVID LUHNOW
May 23, 2008; Page B1
A flurry of activity by emerging oil giant Petróleo Brasileiro SA is heating up speculation that Brazil may have enough deep-water oil to propel it into the big leagues of global oil exporters and ease pressure on soaring oil prices.
Petrobras, as the state-controlled company is known, announced its latest discovery late Wednesday, saying it struck oil some 155 miles off the coast of São Paulo state. The new field is close to the company's massive Tupi field, which was discovered two years ago and remains the world's largest find since 2000 and the biggest in the Western Hemisphere since 1976. Petrobras wouldn't say how much oil the new field might hold.
The find is the latest in a string of successful oil strikes by the company, raising hopes that Brazil will be the next big thing in global oil.
With oil prices setting new highs, big discoveries in Brazil would boost the energy industry's optimism that it could deliver enough oil to keep pace with fast-growing demand. In trading Thursday on the New York Mercantile Exchange, oil price fell $2.36, or 1.8%, to $130.81 a barrel, partly on the prospect of more supply flowing from Brazil.
Major finds in Brazil would be especially welcomed in the U.S., providing a new source of oil from its own hemisphere.
The focus of attention is the Santos Basin, a collection of potential oil fields buried under miles of ocean water, earth and a stubborn layer of salt. Exploratory drilling in different fields has produced very similar oil, fueling a tantalizing new theory: that the basin could be one contiguous megadeposit of crude.
Despite the excitement, there is good reason for skepticism, observers say. Exploring and extracting oil from ultradeep waters is an expensive and risky proposition. The salt that sits atop the potential fields adds technical challenges because it shifts and is prone to sudden pressure changes. And despite the advances in geological imaging technology, it is impossible to know the quantity and quality of oil hidden in a deposit until it starts flowing -- a process that takes years.
"This is still at a very early stage," said Peter Jackson, senior director of exploration and development at Cambridge Energy Research Associates, an industry consulting firm. "In a play that size and scale, they've still got a lot of appraisal and homework to do to establish the likely holdings, and then they've got a lot of work to do to deliver it."
Some investors aren't waiting to place bets. The publicly traded slice of Petrobras has risen so much this year that the company's market value has surpassed that of household names like General Electric Co. and Microsoft Corp.
Actions by Petrobras and the Brazilian government have fueled investors' enthusiasm. Brazil called off planned auctions of drilling concessions at Santos Basin blocks after the Tupi find was confirmed late last year. Some observers read that as a sign that the Brazilians believe the basin is swelling with oil, and want better terms on any new auctions.
Meantime, Petrobras is ramping up its deep-water drilling capacity at a furious pace. This week, the company, which has already leased about 80% of the world fleet of vessels capable of drilling in deep water, announced plans to lease 40 more drilling vessels and semi-submersible oil platforms starting in 2017. Petrobras also has announced that it will hire 14,000 more workers and set up a new management division for drilling through salt.
Adding to the excitement was an apparent slip of the tongue last month by Brazil's oil-industry regulator, Haroldo Lima. Mr. Lima said the Santos Basin could contain about 33 billion barrels of oil, which would make it the world's biggest find in decades. Mr. Lima later retracted the statement, saying he was referring to published speculation by oil analysts in a trade journal.
Even with the oil that has already been found, Brazil, which was a net oil importer until recent years, seems almost certain to join Venezuela and Mexico in the ranks of top Latin American oil producers. For a country starting to shed its past as a volatile developing nation, such a bonanza could be a mixed blessing. Oil money will fill government coffers, but it could also tempt Brazil to follow the profligate habits of other major oil exporters.
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