Petroleo Brasileiro: Reality Begins to Bite 16 comments
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It has finally dawned on people that the 33 billion barrels of oil Petrobras (PBR) has supposedly found in its new deep-water survey isn't the manna from heaven that foolish analysts made it out to be. Way back on April 17th, your humble correspondent totally nailed the story with this post. Click on that link to get the full rundown, but basically I said that:
a) Nobody knows how much oil is down there, so pulling numbers like 33 billion barrels out of a hat is just plain stupid, and especially stupid for big New York analysts to recommend buying PBR on such flimsy evidence.
b) Even if it is a large find, it’s not gonna be easy to get the stuff out and it will be darned expensive whatever happens.
So Bloomberg dropped this bomb on the world. Well pointed out the obvious, really, but it needs to come from a reliable source before anyone cares:
a) The oil field lies twice as deep underwater than the present depth record for production
b) Then there is about a mile of rock hard salt laden seabed to drill through
c) Then the oil is cooking at 500ºF at very high pressure, a combo which is good enough to melt any equipment currently in use.
d) The very incomplete seismic survey will have to be upgraded, because you gotta get the drill points spot on when you're drilling under these circumstances else pay serious money for a dry hole. This isn't like drilling a hole Texas, getting slightly miffed if nothing happens then moving on and drilling another. These holes come in at around $60m a pop.
So the bottom line is even if there is oil and even if they can get the oil out of the ground, it's gonna be a real expensive project and it'll take ages to get it going. Just like I said back on the 17th when I called the stock a short.
Since then the stock went from $124 to $130 or so, but in the last few days has come back and now it's at $122 and my call is in the green. The WTI oil price moving from $113 or so to $120 didn't help my short cause at all, and although I was tempted to short more at $129 or so I didn't. Frankly I was chicken, because the frenzy fed on shaky information and hype could have taken the stock higher.
click to enlarge
But now that reality is beginning to bite and the news on exactly what this oil find is really about (and is that oil price dropping a touch at last?) the short play is looking good. I said before that it was an easy $10 trade....with $8 to go I'm sticking to that call, dude.
Disclosure: Short PBR
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This article has 16 comments:
Having said that, your trade idea may not be bad. Perhaps It depends a little too much on the Fed not cutting rates?
I am a long-term long of PBR and already bought and sold several batches. I still hold buy first batch, bought at split-adjusted $19.32 (12/27/2004), and my last batch, bought at $99.14 (3/19/2008). Personally, I would rather buy the dips then try to short PBR.
Points that i agree in the article :
1- size of this last discover still unknow (But remember last discover started same way and after it was confirmed true)
2- Very expensive to reach the dark gold, oil will have to keep high prices to justify the investment.
Points to Consider not mentioned on the article.
1- Even if this Last discover won´t get its size confirmed, petrobras has a huge size of brazilian shore that havent been studied yet, so you can expect news on the next years.
2- Brazilian Gorvenement is start to talk about making it more difficult to overseas companies to explore Brazilian shore, so .... More protection for Petrobras
3- 1 of PBR major problems is the Gasoline/Diesel controlled prices in Brazil, studies says that PBR has a 30% difference from international prices, and PBR is starting to pressure gorvenement to increase prices, we can expect a raise about 5 to 8% in a few months.
4- Brazil in a long term (very long term 15 years min) will be in front of nigeria in production, and Brazil has no territory conflics whatsoever, Brazil has no Nature Disasters, Brazil has one of the most stable political scenes in Latin America.
5- Brazil is going to be Investment Grade in a 1 - 2 year, PBR is the strongest public company in the country, so ......
Well I agree that PBR maybe be good to short ia a short term view because it has been trading on speculation on the new discover, and maybe things are not the way that has been promoted.
But if you think long term BUY PBR ..... dont worrie about short term problems, Just look a 5year graph .... The trend will continue to be UP, UP and UP .......
marceloiphone@gmail.co... (If want to discuss any brazilian companie)
See the phase diagram of iron at arxiv.org/ftp/cond-mat...
The melting point of iron is about 2000 K.
Everything melts at 250 Celsius at 15000 PSI as reported by Blomberg?
Is something wrong?
for everything you could possibly want to know about "Ultra Deep Water Exploration & Production Oil Wells – Rewards vs Risks"
Good Luck and Good Investing. HLW3333 4/29/08 12:59pm EST
But considering, that Brazil has price controls for petroleum products in place - pansy poetry socialist government it has - i will not go long PBR. Until Brazilians pay market price, there is no demand destruction taking place, and PBR will never get to be an exporter, but an importer like in March, when they had to import 660 000 barrels.
The bloomberg article is a piece of junk! What is the melting point of bismuth. The reporter should check it out before writing.
According to the CEO of PBR interviewed by Financial Times, there is
no insurmountable challenges on taking out the oil. See
www.ft.com/cms/s/0/7ab...
FT.com / Companies / Energy Utilities Mining - Petrobras confident over deep water well
PBR official have discussed the likely production costs. They think it will cost $25 per barrel to produce. Which will be a real drag on profits when oil falls to $50 per barrel. Make sure you wake me up when that happens.
In the past week or so we have heard Russia admit they will struggle to maintain production at 9 Mbpd. Mexico warns that their production will decline at around 8% per year and their exports even more as home consumption increases. And the Saudi's have announced that they do not plan to produce much more oil per day even when their capacity rises to 12 Mbpd in a few years. Meanwhile, China's oil consumption has risen 8% this past year, India's probably also and the emerging markets together are now drinking more oil than the USA.
That sound is not a bubble breaking. It is cavitation as the HMS Hubbert's Peak cranks up its screws and prepares to head out to sea, pausing to limit the wake while rounding the Iraq production buoy, then hydroplaning out into open sea leaving commodities shorts sliced and diced as if by a Ginsu. But wait! There's more!
www.searchanddiscovery...
This link takes you back 6 years. Look at the domed structure peaking at BM-S-22 where Hess holds a 40% claim. Since this article appeared, Petrobras has drilled 11 holes through the salt and hit oil, gas or valuable condensates EVERY time! This talk about precision targeting is either hogwash, or the Brazilians have a divining rod confirming Lula's speculation that God must be Brazilian. Eleven holes, eleven finds. It is no wonder that in December Brazil announced that they were taking 41 nearby claim blocks off auction.
Heebner is right. Pass the salt.