Bloomberg - 15 Apr 08

Prof. Robert B. Laughlin
Department of Physics
Stanford University, Stanford, CA 94305
(Copied 9 Jan 10)

Petrobras Discovers World's Third-Largest Oil Field

By Joe Carroll and Carlos Caminada
April 15, 2008

(Corrected to show BG Group is holder of 30 percent stake in 14th paragraph of story that ran April 14.)

April 14 (Bloomberg) -- Petroleo Brasileiro SA's offshore Carioca prospect may hold 33 billion barrels of oil, enough to supply every refinery in the U.S. for six years, making it the third-largest oil field ever discovered.

Additional wells must be drilled to develop a "more conclusive" estimate, the Rio de Janeiro-based company said in an e-mailed statement. Only Saudi Arabia's Ghawar and Kuwait's Burgan fields are bigger: Ghawar holds as much as 83 billion barrels of crude, while Burgan has up to 72 billion.

Petrobras, as the company is known, rose almost 6 percent. U.S. depositary receipts of Repsol SA, a partner in the field, surged as much as 21 percent to $44.85, the stock's largest daily gain. New York-based Hess Corp., which owns stakes in two nearby prospects, had its biggest intraday gain since 1981.

"If all of those barrels are recoverable, that's a very significant find," said Dick Gibson, a geologist who's been advising oil and natural-gas producers since 1975. "That whole area off the coast of Brazil is becoming a new oil province."

The Carioca field, also known as BM-S-9, is located beneath a layer of salt in the deepwater Santos Basin off Brazil's southeastern coast, where Petrobras in November announced the discovery of the 8 billion-barrel Tupi field.

Giant Field

"This would be a giant field under any circumstances," Merrill Lynch analysts Frank McGann and Shariff Koya said today in a note to clients. "If it were recoverable oil and gas, it would potentially dwarf Petrobras's existing reserves."

Brazil holds an estimated 12 billion barrels of crude reserves, South America's second-largest deposit behind Venezuela, according to London-based BP Plc. If the 33 billion- barrel estimate for Carioca is confirmed by additional drilling, Brazil's reserves would surpass those of Libya.

Carioca is 66 times larger than the Jack field discovered by Chevron Corp. in the Gulf of Mexico in 2004. San Ramon, California-based Chevron says it will cost more than $3 billion and almost a decade to bring the field into production.

Haroldo Lima, director of Brazil's National Oil Agency, disclosed the 33 billion-barrel estimate at a seminar in Rio de Janeiro and said no official information is available yet. Lima's comments were confirmed by Fernando Manso, a spokesman for the agency, and were reported earlier by Folha de S. Paulo.

Petrobras began drilling a second well at Carioca on March 22, today's statement said.

Boosting Valuation

Petrobras shares rose 5.9 percent to 83.13 reais in Sao Paulo trading. Earlier the stock climbed as much as 7.6 percent. The rise in common and preferred shares added 9.2 percent to the company's market valuation, increasing it to 421.9 billion reais ($250.3 billion).

Petrobras is the fourth-most valuable company in the Western Hemisphere, behind Exxon Mobil Corp., General Electric Co. and Microsoft Corp., according to Bloomberg data.

"We think this is part of a major transformation of Petrobras, which could lead to it becoming a much larger company in terms of production and reserves over the next 5-10 years," the Merrill analysts wrote.

The field is 45 percent-controlled by Petrobras. BG Group Plc holds a 30 percent stake and Repsol controls 25 percent. Hess, which is a partner in efforts to find and tap subsea reserves adjacent to Carioca, closed 9.1 higher at $101.19 in New York.

The Carioca field may become Petrobras' biggest and it may "significantly" increase the company's future production, said Eduardo Roche, a fund manager at Rio de Janeiro-based Modal Asset Management.

Gigantic Field

"The potential for this field is gigantic," said Roche, who helps manage about 1 billion reais in bonds and stocks, including Petrobras shares, at Modal. "Petrobras is among a handful of companies that have been able to renew its reserves. Its capacity to increase future output is absurd."

Carioca remained hidden from explorers until recently because energy companies lacked the technology to assess prospects obscured by undersea salt formations.

"Salt is difficult to see through for a geologist because salt absorbs seismic energy," Gibson said in an interview today. "Also, a decade ago the physical technology didn't exist that would even enable you to drill in water that deep."

Petrobras recently created a division to coordinate all exploration projects off the southeast coast, given its potentially large reserves.

"We haven't seen any discoveries that large in decades because we've punched enough holes in the Earth that we already know where most of the big fields are," said Gibson, president of Butte, Montana-based Gibson Consulting.

Carioca is 273 kilometers (170 miles) off the Brazilian coast in water more than 2,000 meters deep.