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Petrobras - Just Kidding

The head of Brazil's National Petroleum Agency said Petrobras has discovered a monster offshore field that could contain 33 billion barrels of oil. It would be the largest discovery in decades. Unfortunately Petrobras denied the claim.

The head of the NPA said his information came from informal sources. Petrobras said there was no basis for his claims since they are only now drilling a second test well. Deciding how much oil is in a particular field after having only drilled one well is laughable and the NPA head may need to find another job.

To determine even remotely reliable reserve estimates for a new field requires multiple wells in different locations to delineate the length/width of the field and then conduct flow tests from the different test wells. The true reserves of a field may not be known for years after production drilling commences.

There is also no description on the NPA estimates of 33 billion barrels on whether that is oil in place or recoverable. Recoverable oil is typically less than 1/3 of a deepwater field and can be much less. The costs to extract deepwater oil make it only profitable for the first few years of production. Once the volumes of extracted oil slow to less than the high costs of maintaining the platforms then the well is capped leaving millions of barrels in the ground.

The reported discovery, known as Carioca, is a deepwater sub-salt field under 7,000 feet of water and 10,000 feet of sand and rock and 6,600 feet of salt.  A 25,000 foot well in deep water can only be drilled by 4-5 existing companies. Add in the 6,600 feet of salt and it narrows the list even further. Salt is unstable and tends to shift. This requires heavy duty reinforced well pipe to prevent the well from being lost by a shift that crushes the pipe and halting the flows. Actual production from this field could easily be 8-10 years in the future after many technological barriers are overcome. The wells would be extremely expensive and require massive flows to be commercially viable.

Nobel Corp (NE) announced a $4 billion contract with Petrobras to drill in the newly discovered Tupi field, which is next door to the Carioca field. Four billion dollars just to drill wells. That is how expensive these wells are to construct not to mention the construction costs for production platforms and maintenance of the operation once those platforms begin operations. Yes, there is oil there as proved by the first well BUT it could be a decade and $10 billion dollars later before the first barrel arrives at the surface.

Petrobras gained +9.33 on the news even after denying the NPA claims.

Jim Brown

OptionInvestor.com

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