A von Altendorf

Petrobras: Extremely Overvalued

Bloomberg update: Petrobras doesn't have the E&P skills to appraise or develop Tupi-Carioca, need $250 billion to attempt it and will have to partner with Exxon to get it done, if it's worth doing, which is still an open question.

www.bloomberg.com/apps...

Petrobras: Extremely Overvalued

Abiotic oil is impossible. There are no hydrocarbons in the mantle, bubbling up through basement blocks. Peak oil is a reality.

Petrobras: Extremely Overvalued

Ken Heebner got in at $30, doubled his position at $40. PBR is less than 0.2% of his portfolio. I agree, let's see what the stock trades at six months from now.

Petrobras: Extremely Overvalued

Quick follow up on Anaconda's remark that deepwater oil discoveries in the Gulf of Mexico are analagous to deepwater Brazil. Sorry, not true. GOM is a rapidly subsiding megabasin. Oil was found in middle Miocene formation, with a secondary objective in early Tertiary -- very young stuff, regardless of overburden and SSTVD. Petrobras is drilling into a Jurassic pre-rift or Berriasian syn-rift carbonate, about 100 million years older. Burial age matters. Pressure does not "keep oil from cracking."

Petrobras: Extremely Overvalued

I appreciate Anaconda's contribution to this discussion. There are three separate topics concerning Brazil's claim of 50-70 billion boe in new reserves: geology, engineering, and finance. Certainly, the world needs and wants a new giant field. All the others are in fairly steep decline, including Ghawar. The continental margin of Brazil is easier to deal with than the Arctic Ocean.

The goal of an appraisal program is to learn how big a prospect is and how it might be best developed. At the moment, all we have is a Monte Carlo projection based on a single well test (as far as I know). Use of statistical probability models in the oil industry is an pandemic mental illness. I recently attended a presentation by a statistics expert who said you could throw 21 darts at the continent of Africa and have a 95% chance of finding oil, without looking at geological provinces. That's how Petrobras and ANP came up with their new reserves guesstimates, using a statistical model. Nothing unusual about it, everybody in the industry does it, except geologists, geochemists, and geophysicists. Science is not a dice roll, nor 21 dice rolls based on arbitrary inputs.

The geological question is highly technical. My skepticism is based on Petrobras' published data. The BM-S-11 Tupi well found pay in "heterogeneous layered carbonates, variable reservoir quality." What they were expecting however was a pre-rift sandstone or trapped accumulation directly under the salt pillow. Like I said, it's a technical question with a lot of tangents and implications. But I take Petrobras at their word, and they reported that Tupi discovery is mostly gas (double the GOR of Ghawar).

This is okay for PBR. They need gas and are planning to build a 300km pipeline for domestic supply. It doesn't have to make financial sense.

Petrobras: Extremely Overvalued

Yep, that wily Accumulator certainly knows his stuff, quoting Christopher Palmeri who covers Los Angeles for Business Week, apparently an investigative reporter on petrochemicals, too:

"Although the Bratz are breathing down her neck, Barbie still has plenty of life in her, with overall sales expected to increase this year. In November, Mattel launched My Scene, an extension of the Barbie line whose characters are dressed suspiciously like those street-savvy Bratz."

First it's a puff piece on Mattel, then a smiley face for PBR. All knuckles and know-how, when you're *an american published (very well known unbiased) investigative reporter at BWEEK*

A colleague advised me not to engage the trolls, just ignore them, which is always good advice. However, I'm here in case anyone wants to talk more about the geology of the Santos basin.

Petrobras: Extremely Overvalued

So we understand each other correctly, the Tupi-Carioca gas plays are subsalt, roughly 20 million years older than Campos turbidite sands. You recognized the issue of maturation. Are PBR engineers fibbing? In some respects, yes. Cartoon subsalt strata and faults drawn on a 2D line. "Variable reservoir quality" as a euphemism for low permeability and dolomite. Shell bowed out. If Exxon is in, let's wait and see what they report next year, if anything.

Petrobras has to find new reserves. I estimate they have 6-7 years recoverable (at 2 million boe per day) in Campos, no meaningful opportunities onshore. That's why PBR went on a shopping spree for deepwater rigs, and I think they plan on funding exploration with a bond issue, since they have a slightly negative cash flow. Most brokers and bankers call PBR a safe bet. I'm sure they'll get whatever cash they need.

BTW, mag and grav tell us basically nothing.

Petrobras: Extremely Overvalued

Please, get the facts straight. Our chief scientist did a project for Marathon, not "Venezuela" and it was 12 years ago. No one paid me to release this article about Petrobras. Yes, it affects the reputation of our firm, hopefully for the better, but that seems doubtful at present. In a couple years we'll see.

Petrobras: Extremely Overvalued

A couple questions, boys. Who wrote "PBR slandering type of articles like this all last year"? Nobody. That's why you ended up in this silly situation, valuing it three greater than Shell, 50% more than Exxon. And come again, how is Petrobras "a great ally of the US"? I hope you realize that PBR is an a net importer of oil and gas. No matter what they produce from Tupi and Carioca, none of it is heading for the United States. I'm not talking about their financial situation at the moment. Petrobras has about 6 or 7 years of recoverable reserves, so they have to drill somewhere fast to keep up with domestic Brazilian demand. Hence the big push offshore.

Petrobras: Extremely Overvalued

For the third and final time, I will say again that we are not shorting the stock. Our company has no financial interest in Brazil or PBR or anything else remotely related to any oil company, large or small. We do geology, and it is often the case that we have to deliver unwanted but accurate information. What I published here was a summary. If you are an SEC qualified investor or banker or fund manager, email CWSX to request the full Assessment report. Nor am I claiming to know more than Goldman Sachs, although I doubt they have much experience in choosing drilling locations.

Petrobras: Extremely Overvalued

The Street.com article by Knowledge@Wharton quoted Petrobras execs and a Brazilian author, not geology. I agree that foreign contractors will gain big revenues and okay profits in the short term. Floating rigs would be better deployed in India, if the goal is to produce oil, but Brazil has more cash and less bureaucracy.

Petrobras: Extremely Overvalued

The number of targets is unimportant, it's a question of what's down there. The deepwater subsalt pay is mostly gas (not oil) in compartmentalized, ancient, low-perm dolomite.

Petrobras: Extremely Overvalued

Neither CWSX nor myself personally are long or short PBR, no financial stake in Brazil. As far as 'advertising' is concerned, we aren't looking for clients, thanks.