3 Ways to Profit from Brazil's Tupi Oil Field

By Guest Author: Robert Williams, PhD, P.E.

How and why invest in Brazil. The why is directly connected to the massive oil / gas finds offshore Brazil in the last couple of years but also because of its well-established agricultural and mineral economy. The oil and gas developments projected for the next decade will further enhance their global economic stature.

Brazil is the fifth largest country by geographical area and it occupies nearly half of South America. Brazil is the fifth most populous country and the fourth most populous democracy in the world. Brazil was a colony of Portugal until its independence in 1822. Brazil is the world’s tenth largest economy at market exchange rates and the ninth largest in purchasing power. …

One quick and easy way to invest is Brazil’s ETF EWZ. See the chart below as to why the timing may be about right to invest in this ETF.

Another way to invest in these projected Latin American economic developments is to buy shares of Brazil’s state-controlled oil company (Petroleo Brasileiro Sa Petrobras ADR (PBR)). (Tate Dwinnell Edit: I’d like to add that that while PBR is a great long term idea, in my opinion it’s overbought after nearly doubling off the lows. I recently took profits on a position in this and am looking to get back in on a return to around the 50 day moving average around 24 - 25.)

PBR’s Tupi field may contain as much as 8 billion barrels of oil and natural gas, an amount that could boost the country’s reserves by 62 percent. Recent news releases indicate that crude oil production from the Brazilian offshore fields Tupi, Guara and Iara is commercially viable, even below $40 per barrel oil price.

Oil production from Brazil’s massive new oil fields, which are in very deep water and buried beneath a thick layer of salt could start producing at 14,000 barrels of oil a day within second quarter 2009. The first full production phase of Tupi, using a floating production, storage and offtake vessel [FPSO] pumping 100,000 barrels of oil equivalent per day by 2010 has already been sanctioned with a budget of $3.7 billion. Additional FPSO’s will be added up to a maximum of 10 vessels eventually producing up to 1 million BOPD. 40 trillion cubic feet of gas present in the offshore oil fields will allow peak gas production from Tupi alone of 1 billion cubic feet a day,

The Tupi field is located approximately 200 miles off the coast of the State of São Paulo and at over 6000 feet of water depth, with well depths of nearly 15,000 feet.

Major capital investments are required for oil development if you consider that 10 FPSOs are required at $3.7 billion each with ultra deep subsea well drilling adding additional costs. However, the ultra deep sea technology is well established for Gulf of Mexico, offshore Nigeria and other global developments.

Brazil’s major offshore discoveries present geo-political and economic considerations since the light crude oil is much more desirable for U.S. and Brazil’s refineries than the heavier crude oil produced by Venezuela and Brazil.

There is a third way to invest in Brazil’s oil and gas economic development which provides global diversification in the oil and gas industry covering oil, natural gas and LNG. This is a U.K.-based BG Group with a 25 percent stake in Brazil’s offshore fields.

BG Group plc (BRGYY.PK) has operations in U.K., Italy, Kazakhstan, Norway, Algeria, Libya, Madagascar, China, Malaysia, Singapore, Egypt, India, Israel, Palestine, Nigeria, Oman, Philippines, Thailand, Tunisia, Argentina, Bolivia, Brazil, Canada, Alaska, Chile, Uruguay, Trinidad and Tobago and the United States. On November 14, 2008, BG Group acquired a 90% interest in Queensland Gas Company Ltd.

BRGYY just released record earnings up 74% with a dividend increase of 20%. The earnings press release identified “strategic progress in Australia and Brazil that will support BG Group’s growth over the next two decades.”

Author Bio: Robert Williams' 40-plus years' experience includes oil / gas engineering in crude oil/ petroleum products / natural gas, refining, processing and pipelines on all continents, except South America and Antarctica, from Alaska and Australia pipelines to S.E. Asia offshore, from U.K. North Sea to Los Angeles fuel truck racks and from Romanian pipelines to West Africa FPSO.

Comments

[Conan the B...:]

Snoqual: Hope they are right must mean you own it.

in which case I hope they are right too. You have good company, China invested $10 Billion in PBR in Q4 last year.

Feb 17 08:40 AM

[mangy cat:]

and repsol ypf (rep) is a partner in the allegedly even larger carioca field

Feb 17 09:21 AM

[Gravity404:]

Take a look at RIG. They will benefit from Tupi. They are the specialist for this type of production.

BG is a LNG play that paying too much for acquistions.

EWZ is ripe for picking.Over 20% of holdings is in various Petrobras holdings; plus you get RIO with it.

Feb 17 09:25 AM

[SJD:]

I think DO is also involved bigtime.

Feb 17 10:24 AM

[Gravity404:]

Agreed. Yes. DO is a very well run company that will benefit as well as RIG. These guys tighten their belts well to position themselves for when the global economy comes back. With a forward PE of 5...

Feb 17 10:46 AM

[svkoho:]

Be careful accepting statements that deep offshore oil is viable at $40 a bbl. I certainly don't know what the break even price for Tupi and similar fields are but a number as low as $40 is almost certainly absurd. The difficulty and cost of extraction is unknown despite what you hear from the government. Cuidado!

Feb 17 11:48 AM

[fran:]

china's reason for investing in PBR is far different than the reason for an individual. China seeks first, guaranteed access to oil reserves, regardless of cost/ROI. China could care less if PBR were nationalized at the expense to shareholders, so long as their access to source is upheld.


On Feb 17 08:40 AM paultaut wrote:

> Snoqual: Hope they are right must mean you own it.
>
> in which case I hope they are right too. You have good company, China
> invested $10 Billion in PBR in Q4 last year.

Feb 17 11:57 AM

[searcher:]

Would be very interested in dated chapter and verse on that $40 figure. It is, indeed, patently absurd. Maybe that is the transportation premium? Just kidding, a little.

Feb 17 12:07 PM

[Gravity404:]

From report -- "In total, (RIG) has seen around $300 million disappear out of backlog "due to credit related terminations." In other words, the backlog now stands at $38.7 billion, rather than an even $39 billion,




On Feb 17 11:48 AM svkoho wrote:

> Be careful accepting statements that deep offshore oil is viable
> at $40 a bbl. I certainly don't know what the break even price for
> Tupi and similar fields are but a number as low as $40 is almost
> certainly absurd. The difficulty and cost of extraction is unknown
> despite what you hear from the government. Cuidado!

Feb 17 06:20 PM

[Conan the B...:]

Fran: fully agree with your assessment.

China is in talks with Columbia as well. They are making sure they get theirs.

Meanwhile, Chavez has managed to get Venezuela"s Constitution Changed. He might wind up being another Castro.

Feb 18 12:39 AM

[eromanga:]

Why go offshore for oil exposure in Brazil? Why not follow companies that are doing low-cost infill exploration onshore where a well costs US$2m a pop to drill and complete? The onshore sector has much better economics. Check out Eromanga, ERHYF and erh:au, an Australian company with acreage in onshore Brazil.

Feb 18 04:16 AM

[Alan von Al...:]

Tired of warning on this. Sell.

Feb 18 09:40 PM

[jt:]

A von A...sell what? Warning about what?... and why? TIA. jt

Feb 19 05:00 PM