After their April field trip to Brazil Credit Suisse’s oil analysts issued a 13 page report*** updating their views on the Brazilian pre-salt wild-catevaluation and appraisal wells that have been receiving so much attention in the financial media since PBR’s first announcement about its find in BM-S-11 "TUPI" field wild-cat oil well in the Ultra-Deep Water Santos Basin on November 08, 2008.
IMHO, in the days, weeks, months, and years ahead this report will provide investors in any of the oil sector companies involved in the exploration and production of oil from the ultra-deep water pre salt block leases in the three major basins mentioned with a realistic "road map" to the "POT OF BLACK GOLD" that we are all hoping to find in the deep waters off the coast of Brazil. Below are some key excerpts from the report that will give HES investors a realistic and objective assessment of HES’s 40% interest in Block BM–S-22 in the so called "Sugarloaf" area of the Santos Basin. IMHO, Friday’s 5/24/08 correction close at $125.09 (open $127.99, High $130.15, Low $123.45) that was $11.91 (8.69%) off of HES’ 5/21/08 all time $137.00 high took most, if not, all of the hot air out of the high flying 2008 speculative HES "Hot Money" balloon.
Today’s PBR rig shortage announcement - Short of rigs, Petrobras delays some subsalt tests Mon May 26, 2008 6:03pm EDT see- http://www.reuters.com/article/marketsNews/idINN2629696120080526?rpc=44&sp=true should mean the Brazilian rumor mill should be quiet at least until XOM announces its BM-S-22 test results. By then US Investors’ perception of the probable affect of a Democratic sweep of the 2008 Presidential and congressional elections will have on capital gains will start an energy sector stampede that will boggle the mind.
Here are some key excerpts from the above mentioned CS 13 page report. Credit Suisse - 14 April 2008 Europe - Equity Research Oil & Gas (Integrated Oil & Gas/E&P/European Refiners) / MARKET WEIGHT Research Analysts - Edward Westlak, Emerson Leite, CF, Mark Flannery, Mark Hume, Katherine Tonks, Ken Sil, Arun Jayaram, CF, Stuart Joyner ..
Hot Topic - Feedback from the Credit Suisse Brazil Trip Apr '08 - Improving resource confidencebut early days.Sector review
Brazil, huge potential but early days: After last week’s Credit Suisse field trip to Brazil, we have updated our views on the Brazilian pre-salt. The trip confirmed the resource potential of three key blocks: BM-S-11 "Tupi", BM-S- 24 "Jupiter" and BM-S-9 "Carioca" and helped firm up the 70-100bn total resource potential of the pre-salt play across all three major basins. The visit also highlighted the large amount of additional amount of work required to fully appraise this reserve and gave us some new ideas about the timing and net present value of future developments.
Resource potential confirmed: The table below summarises our reserve estimates for four key bocks, with significant caveats given the early nature of the play. Industry participants expressed increased confidence in BM-S-8 and BM-S-9 and we await drilling results from both blocks.
We learned that Jupiter could contain a greater percentage of higher value oil than previously thought, boosting the project’s economics. We also believe that BG’s Oil-in-Place estimate for Tupi of 12-30bn roughly equates Petrobras’ 5-8bn boe recoverable resource estimate, using a 25% recovery factor. We think that there could be further upside from higher recovery factors across the pre-salt play over the longer term.
Much of the future volume, capex and value projections will ultimately depend on reservoir performance. Tax risk for existing concessions appears low right now, though future rounds may have higher fiscal takes. While we didn’t speak to all of the operators in Brazil, we believe the other 12 oil companies in country could require up to 10 incremental floaters in the next few years in order to meet exploration drilling commitments, and avoid relinquishing acreage.
Figure 1: Reserve estimates for key pre-salt blocks, millions of barrels
Block Name Risked Blue Sky Comment
BM-S-11 Tupi 7500 10000 5-8bn from Petrobras. 12-30bn+ OIP from BG
BM-S-9 Carioca 2000 5000 550MB Carioca discovery. Guara well drilling. Many prospects. BM-S-9 may be all one field
BM-S-24 Jupiter 7500 10000 Gas/condensate discovery similar in size to Tupi. Well is drilling - deeper horizon could be oil prone
BM-S-8 TBA 850 2500 Well is testing. Results in Q208
BM-S-22 NA 3000 5000 First well to spud by end 2008
Source: Credit Suisse estimates
The 33bn barrel excitement
The ANP regulator Monday April 14 has apparently indicated that he believes that the Sugar Loaf structure could contain 33bn boe. This has caused considerable excitement in Brazil-exposed stocks, but we think that the market may have over-reacted to some reporting of the comments. The Sugar Loaf structure contains blocks BM-S-8, 9, 21, and 22, with around 40% of the estimated area still unlicensed. We currently include 15bn boe of Blue Sky resource in our estimates for the licensed part of Sugar Loaf.
Last week’s trip generated positive industry feedback on the potential of BM-S-9 and significant hope for BM-S-8 (where a well is still testing). We also heard comments that the main reservoir on BM-S-22 may be thinner than on additional blocks, although there may be additional deeper targets on BM-S-22. At the moment this discussion remains wholly speculative.
Before getting carried away, we should point out that there is a difference between becoming more bullish on potential total resource numbers – as we have done- and being happy to pay for it all up front. There has been very limited drilling to date in the Sugar Loaf area, reservoir performance is untested, any development solution is still uncosted i.e. reserve value is highly uncertain. It would seem much too early to accord full additional Blue Sky value to any of the players in Sugar Loaf, we think, particularly for those stocks with limited exposure.
Feedback from the CS Brazil Trip - Last week Credit Suisse organised an investor trip to Brazil to meet with senior management/technical staff from a range of industry players and regulators in order to discuss the outlook for the Brazilian upstream sector. One of our primary objectives was for clients to better understand the potential in the recently discovered pre-salt trend offshore the Santos Basin and its implications across the full oil and gas value chain. Below we outline some of the key feedback from the 3-day trip where we arranged meetings with Wellstream, Repsol (restricted – facts only), Petrobras, Lupatech, Cameron, Noble and the Brazilian Upstream regulator - ANP.
The key messages from our meetings in Brazil can be summarised as follows:
Technological challenges drive positive outlook for the service sector:
At this stage the flow rates of exploration wells have been high. However, more drilling and appraisal with be required to ascertain the longer term production performance of the reservoir. This could increase injection well requirements.
The water depths of over 2,000m will likely increase the weight of the subsea pipelines when laying which may necessitate further studies/improved technology,
Water injection into carbonate reservoirs could increase the corrosion risk due to increased acidity: this would require higher quality completion systems.
The waxy nature of the crude could require flow assurance.
There is real need to maintain integrity of the well bore through the salt layer.
Of our global service stocks we believe the "Big 4" service companies Schlumberger (SLB), Halliburton (HAL), Weatherford (WFT) and Baker Hughes (BHI) as well as the specialised deepwater service stocks such as Wellstream (WSML.L), Subsea 7 (SUB.OL), National Oilwell Varco (NOV), SBM Offshore (SBMO.AS), Sevan Marine (Not Covered) should all be well positioned to benefit from a sustained or rising level of activity in offshore Brazil.
More exploration potential, more drilling required: At over 2,000m, the water depth is not a challenge per se for subsea wellheads/ manifolds or for the deepwater drillers. However, we believe that the risk is that more wells will be required to explore/appraise prospects and develop discoveries already made in the pre sale (water and gas injection could be required. The carbonate reservoirs are located over several layers and despite good apparent reservoir qualities (i.e. well deliverability) are likely not heterogeneous. We flag that deepwater drillers such as Transocean (RIG), Noble (NE), Seadrill (SDRL.OL), Pride (PDE) and Diamond Offshore (DO) all have strong positions to capture a share of the increased work programmes offshore Brazil in our view.
Resource potential remains potentially huge, but it’s still very early days: If the pre-salt play does extend across all three of Brazil’s offshore basins then Petrobras’ original 70-100bn boe geological model would be vindicated. Data points are limited given the very few exploration wells drilled to date. Petrobras has confirmed that the similarities between the observed reservoir qualities in the Santos Basin pre-salt play and that of the Espirito Santos Basin pre-salt play are encouraging. In light of this the initial potential resource range of 70-100bn boe announced by the Brazilian government late last year may not in fact be such a stretch. However, given that it can take 10+ years to bring these frontier discoveries into production and given that a significant amount of exploration work remains to be done, we are still several years away from proving up such a vast resource base.
Next catalysts: The 1BRSA-532A-SPS wildcat well (Block BM-S-8) was announced as a discovery by the ANP last month and is currently under test. A key unanswered question remains why PBR is testing BM-S-8 having left some other wells untested in order to keep up the drilling programme pace. This may signal confidence in the block. The Guara prospect (PBR, REP, BG) is currently being drilled on Block BM-S-9 and will likely reach target depth by June/July of this year. However, feedback from our trip highlighted that well results i.e. potential resource estimates may not be available until October this year. Appraisal drilling on Jupiter (BM-S-24) aims to confirm whether the deeper horizons are more oily. BM-S-11 should also be further appraised (Lara), and the partners have yet to confirm that BM-S-11 is a contiguous block.
Risks of fiscal changes low for existing licenses There has been much debate and speculation in the press [Reuters] as to the potential for changes to the Brazilian petroleum fiscal regime. Whilst it is very early days in the pre-salt region we believe that changes to existing licences/discoveries in the Basin are likely to be limited at this stage. We do note, however, that there are significant areas that remain unlicensed in the pre-salt play and these may be the subject of tougher fiscal terms. We also note that part of the existing acreage will need to be relinquished over time. Hence the current industry focus on the speed of appraisal drilling to ascertain what acreage to keep.
Focus on Drilling
Our trip to Brazil reinforced our view that demand for deepwater drilling rigs is likely to remain very strong, with the up cycle continuing for several more years. Higher than expected levels of exploratory drilling driven by lease commitments and terms, combined with massive development requirements will also be positive for subsea equipment and drilling equipment suppliers, as well as the large cap oilfield service companies.
We met with Petrobras and two other leading oil companies in Brazil. In total, there are 11 international oil companies and 1 domestic E&P company actively involved offshore Brazil, in addition to Petrobras. Our meetings indicate there is a severe shortage of floating rig (particularly deepwater) capacity in Brazil, with Noble estimating incremental demand for up to 10 rigs by Petrobras alone, including the current tender for four newbuild drillships and up to 2 X 2,400 meter semis. Seadrill’s $4.1 billion announcement of a commitment to supply three deepwater semi newbuilds for six-year terms, at higher than expected dayrates, for longer than expected terms, further supports our thesis, and Noble’s view, that Brazil will require more deepwater rig capacity.
While we didn’t speak to all of the operators in Brazil, we believe the other 12 oil companies in country could require up to 10 incremental floaters in the next few years in order to meet exploration drilling commitments, and avoid relinquishing acreage.
ANP indicated the XOM-HES-PBR consortium will need to have a rig on position on Block BM S 22 before the end of August, or they may be forced to relinquish the block. Repsol indicated it has several prospects that need to be drilled prior to the end of 2010, and that it will need additional deepwater rig time to drill these commitment wells.
How has Credit Suisse’s Reserve View Changed?
BM-S-22 (PBR 20%, HES 40%, XOM 40%) -
Given the existing discoveries in blocks BM-S 8, 11, 9, 24 the geological model for the pre-salt is better developed confidence levels for BM-S-22 should be higher, even though it is still very early days. Despite pre-salt success rates elsewhere, exploration risk in BM-S-22 is still real and success is not automatic in any of these blocks.
There has been some industry discussion as to the likely extent and thickness of the main Sugar Loaf reservoir through the various blocks, with some suggesting that the reservoir ‘pinches out’ as it progresses through BM-S-22. Other sources have indicated that the reservoir on BM-S-22 could be thinner than on the BM-S-9 block, but both of these points of view remain speculative: there has not been a well drilled on BM-S-22 and results of the planned well will not be available until the end of this year at the earliest, we think. We also heard that the BM-S-22 partners may be targeting a deeper pay zone than those drilled to date on other blocks, but again there is no real way of confirming this. Finally, license relinquishment is also a small potential issue on BM-S-22 given a lack of drilling on the block to date. The ANP has recently been talking tough regarding the need for companies to drill exactly as per their lease commitments, which we understand in this case means that the partners need to have a rig in position by the end of August. Right now we do not anticipate that this will be a problem, with the ExxonMobil rig due to arrive on the block some time around mid-year, as we understand it.
Here is a summary of CS’s 5/20/08 Neutral Downgrade of HES due to its quick run-up to $128.03.
CREDIT SUISSE - 20 May 2008 Americas / United States Integrated Oil & Gas HESS CORPORATION (HES) Raising earnings and target price. - Research Analyst Mark Flannery
We are adjusting Hess's earnings and target price to reflect our new commodity price assumptions. As a result, FY2008 EPS goes from $8.07 to $10.99, FY2009 EPS goes from $8.78 to $11.67, and our target price increases to $130 from $112. HES is up 115% over the last 12 months (121% vs. the S&P500) and 45% over the last three months (39% vs. the S&P500). After the recent run, the Hess stock price is right at our new $130 target price as of last night's close.
We continue to like the exploration story at Hess, but are lowering our rating from Outperform to Neutral after a terrific run as we are probably now in a bit of a quiet period for drilling results. The next meaningful event for Hess will be the results of the Pony #2 well side-track which we should hear about some time in June or July, we think.
Rating (from Outperform) NEUTRAL* Price (16 May 08) $128.03 Target price (from $112.00) $130.00¹ 52-week price range $128.03 - $55.24 Market cap. $ 41,456.12m Enterprise value $44,514.12m *Stock ratings are relative to the relevant country index. Target price is for 12 months.
ExxonMobil Corporation (XOM $87.19 5/16/08 price) OUTPERFORM, TP raised from $98.00 to $101.00
Hess Corporation (HES $128.03 5/16/08 price) Downgraded to NEUTRAL TP raised from $112.00 to $130.00
Petrobras (PBR, $70.65 5/16/08 price) OUTPERFORM TP $82.50 (Reflects Adj. for 5/08/08 2 for 1 stock split)
"Of the blocks that have already been licensed, the BM-S-22 block seems to have the largest share of the geological structure, Berman said. ‘If I were to drill a well, it would be in the BM-S-22,’ he said." - Experts, Credit Suisse Suspect Brazil Made Gigantic Oil Find - 4/17/20086:52:00 AM - RIO DE JANEIRO (Dow Jones) – see http://www.cattlenetwork.com/content.asp?contentid=214164
When XOM reports the results of its first BM S-22 appraisal well in the “Sugarloaf area of the SantosBasin, in the later half of 2008 I expect to see HES take off like a “rocket-ship”.
Below is a Map of the SantosBasin subsalt plays and blocks and post-salt fields that shows the location of the XOM (40%) HES (40%) PBR(20%) BM-S-22 Block in which the lead operator XOM is to start drilling this month with Seadrill’s West Polaris newbuild drillship.
Here is the long 6/13/08DJ about this new discovery that contains a nice summary of the Brazil's offshore SantosBasin oil patch story.
Brazil Petrobras Hits Oil Yet Again In Pre-SaltSantosBasin- 06/13 2:25 am By Jeff Fick Of DOW JONES NEWSWIRES - (BRGYY, PBR, RDSA, RDSB) - RIO DE JANEIRO -(Dow Jones)- State-run energy giant Petroleo Brasileiro (PBR) continued to fuel excitement about Brazil's offshore SantosBasin oil patch with yet another new discovery, catapulting the share prices of it and its partner firms higher. Thursday night, Petrobras said a second well in the BM-S-9 block, dubbed Guara, confirmed the presence of high-quality light oil. The find is in the same block as the Carioca discovery announced last September. Guara builds on the euphoria created in April, when the head of Brazil's National Petroleum Agency sent shockwaves through the global oil industry by estimating reserves in the area around Carioca could be as much as 33 billion barrels of oil equivalent, or BOE.
"There has been speculation for more than 10 years that deep under the SantosBasin they would find high-quality oil in large volumes," said Nelson Rodrigues de Matos, an analyst at BB Banco de Investimentos, the research arm for state-owned Banco do Brasil. Thursday's announcement, which was made after markets closed, sent shares of Petrobras and exploration partners U.K.-based BG Group (BG.LN) and Spain's Repsol YPF (REP) higher in trade Friday.
Petrobras, lead operator of the BM-S-9 block with a 45% stake, jumped 1.7% to 45.95 Brazilian reals ($28.14) in afternoon trade on the Sao Paulo Stock Exchange, or Bovespa. BG advanced 1.3% to 1,290 pence in London, while Repsol was 1.0% higher at $41.71 in New York. BG Group has a 30% interest in the block, while Repsol holds a 25% share. The Guara discovery builds on the recent string of drilling successes Petrobras has achieved as it rushes to meet drilling requirements.
Many of the blocks covering the so-called pre-salt layer far beneath the ocean floor were auctioned in 2000 and 2001, with the concessions expiring later this year. Exploration consortiums need to strike oil and send an evaluation plan to the ANP in order to maintain control over the blocks and gain the time needed to further consider commercial viability, analysts said. Interest in the SantosBasin's pre-salt area was first piqued in November, when Petrobras announced its reserves estimate for the massive Tupi field.
Petrobras pegged recoverable reserves at Tupi, the country's largest-ever oil discovery, at between 5 billion and 8 billion barrels of oil equivalent, or BOE. Tupi is in the BM-S-11 block. Petrobras has a 65% operating stake in the block, while BG Group holds 25% and Portugal's Galp Energia (GALP.LB) the remaining 10%. An initial test well at Tupi, expected to produce about 30,000 barrels a day, will come online next year. Petrobras then plans to start pilot production of 100,000 barrels of oil and 4 million cubic meters of gas a day in 2010.
In May, Petrobras announced a test well in the neighboring BM-S-8 block, dubbed Bem-Te-Vi, also struck light oil. Petrobras is lead operator in the BM-S-8 block with a 66% stake, while Royal Dutch Shell PLC (RDSA) holds a 20% share and Galp has a 14% stake. Industry experts and analysts believe that a gigantic geographical structure that could contain several oil discoveries the size of Tupi crosses the BM-S-8, BM-S-9, BM-S-21 and BM-S-22 blocks. Furthermore, the formation also crosses areas that were taken out of last year's concessions auction in the wake of Tupi's discovery.
Exxon, lead operator of the BM-S-22 block, is expected to drill a test well in the block later this year. "Now, the geological risk appears over. Everywhere they drill, they seem to find oil," BB Banco de Investimento's Rodrigues said. "The risk is that development and production could be expensive if oil prices decline."
Petrobras and its consortium partners, however, face significant challenges to quantify the latest discoveries, analysts said. Just three platforms capable of drilling test wells into the pre-salt layer are in the SantosBasin, analysts said. The rigs move quickly to the next area rather than continue further testing that could be used to establish reserve estimates because Petrobras is up against the ANP deadline in order to maintain the concessions.
In addition, prospecting in the SantosBasin is complicated and expensive. Brazil's pre-salt layer lies below 2,000 meters of water and a further 5,000 meters of sand, rocks and salt. "They don't have time to stay longer and test flows," said Luiz Broad, an oil analyst at the Agora Senior brokerage. Future announcements will likely follow the same pattern until Petrobras fulfills its drilling commitments to maintain control over the blocks and has time to test reserves, Broad added.
"The problem is that they didn't expect this area to be so large," Broad said. "The dimensions are so big that the focus now is to maintain the concession." Additional evaluation and details on the latest discoveries will likely have to wait until next year, Broad said. -By Jeff Fick, Dow Jones Newswires (END) Dow Jones Newswires See
BRAZIL! BRAZIL! BRAZIL! isn’t the only HES exploration, appraisal, and 2008 development project story,*** but without question BM-S-22 is going to be the 2008 "Perfect Storm" HES story. The following stories give HES investors the "Big HES BM-S-22 Picture" as of Monday, June 16, 2008.
US Energy Sector Gains As Crude Oil Probes $140/Bbl Mark - Jun 16, 2008 11:39:05 (ET) By Steve Gelsi Energy stocks rose Monday on the heels of a fresh record for oil prices and an upbeat note on the sector's earnings prospects from FBR Capital Markets. Crude-oil futures neared $140 a barrel at one point, supported in part by weakness in the dollar, and lately were more than 2% higher at more than $138 a barrel. Energy traders also digested weekend reports that Saudi Arabia plans to boost oil production.
FBR Capital Markets on Monday raised its earnings targets by about 25% for Hess Corp. (HES), Occidental Petroleum Corp. (OXY) and Murphy Oil Corp. (MUR), to reflect the higher price of crude oil. FBR analyst Eitan Bernstein revised higher his price targets for West Texas Intermediate crude to $115 a barrel, up from $90 a barrel previously, for 2008 and to $110 a barrel, up from $85 a barrel, for 2009.
"Hess is our favorite name... owing to the company's leverage to high crude-oil prices and large inventory of exploration, appraisal, and development projects," Bernstein said. "This year, Hess plans to drill sizable prospects in Brazil, Australia, Libya, and Ghana. The Brazilian prospect, in particular, could be a real game changer for the company." Shares of Hess Corp. rose $2.44 to $128, while Occidental rose 71 cents to $88.78 and Murphy Oil rose 46 cents to $91.01. CHK $61.06 +$1.8 GDP $58.55 +$1.5 HES $127.48 +$1.9 MUR +$91.2 +$0.65 OXY $89.54 +$1.47 TOT $81.28 +0.84 XCO $ 31.99 +$1.51 Seehttp://www.marketwatch.com/news/story/hess-corp-draws-praise-fbr/story.aspx?guid={52DB0DB5-B1B3-4E20-8A16-D67A83A4095B}&siteid=rss
CITI INDUSTRY FOCUS - 13 June 2008 10 pages - Oil & Gas Daily News & CommentsBG Group (BG.L; £12.43; 2M) – Event: Brazil Santos basin discovery Comment: Petrobras (operator, 45%) (PETR3.SA; R$54.39; 1M), BG (30%) and Repsol YPF ( 25%) (REP.MC; €26.80; 2M), the partners in Santos basin concession BM-S-9 which holds the Carioca oil discovery made last year, have announced a discovery in the Guara well that spudded in March. Initial indications are that the Guara discovery contains light sweet 27 degree API oil akin to that found at Carioca. This discovery will yet again stimulate debate as to whether Carioca, along with Guara, are one and the same massive structure, colloquially known as Sugar Loaf, and which could conceivably extend across several blocks.
In reality, the Sugar Loaf prospect, which it is believed could contain over 30 bn boe of resources, will not be properly tested until a well is drilled in the neighbouring BM-S-22 concession, where a well is expected to spud later this year.
We expect today's announcement, although flagged by recent comments from the Petrobras CEO, will be taken positively by the market, not only for the partners in BM-S-9 but also for those in adjacent acreage as the market once again warms to the Santos basin pre-salt theme. See https://www.citigroupgeo.com/pdf/SEU16079.pdf 4/29/08 Credit Suisse Comments about HES 1Q08 Conference Call - Unit production costswere lower than expected in 1Q08, and this accounted for a part of the earnings beat. On the call,management said that 1Q costs are usually the lowest of the year as production tends to be highest (little maintenance in first quarter).This has been true for some years, but even so we think that Hess managed to control upstream costs a little better than expected, something also seen in other Big Oils which have reported so far.
2008 production cost guidance for Hess remains unchanged at $26.50-28.50 per boe, $14-15 of which will be cash costs, and the rest DDA. There are no current plans to change capex in the context of higher oil prices, but this will be looked at again a little later in the year. Given the relative health of the balance sheet (26.9% net debt to cap) there is no particular urgency to pay down debt, and free cashflow will likely be marshaled for future investments. Most of the blocks apparently won by Hess in the recent Gulf of Mexico lease sale were of the lower tertiary type rather than the Miocene type, said management. Hess has been working hard over the last year or two to identify prospects in the GOM, said the management.
The two intended drilling locations on the BM-S-22 block in Brazil have been decided upon already, said Hess, and we should assume that the two wells will drill roughly back-to-back. We expect the first well to spud in 3Q08 once the new rig is shaken down.
It Finds Oil At Earth's Edge And Brings It To The Corner Gas Station - By Marilyn Alva - Investor's Business Daily Posted 5/29/2008. People on the East Coast know the company for its gas stations. But Hess (HES) has pinned its hopes on something else — oil exploration and development — and in more exotic locales such as Brazil and Ghana. see http://www.investors.com/editorial/IBDArticles.asp?artsec=7&issue=20080529
*** MERRILL LYNCH - INTEGRATED OILS JUNE 12, 2008 - Refocus on value, upstream - catalysts and execution risk - We believe that oil price leverage will become a less important investment theme within the integrated oils sector than it has been, and we instead highlight value (potentially through M&A) as a more important emerging theme. We remainfocused on upstream catalysts and execution risk as major drivers of relative performance.
Hess (HES), Buy, PO $150
HES is unique among the Integrated Oils given its potentially game changing exploration program, targeting prospects in Brazil,Ghana, Australia, Libya and GOM. Volatile but news flow rich story. Hess (HES) - Our price objective of $150/share is not based on an explicit earnings or cash flow target multiple. Instead, we recognize that the company's existing business is funding a 2008-09 exploration program with multiple potential game changing prospects.
Brazil is top of everyone's list, given recent excitement about PBR's discoveries, but Ghana, Australia, Libya and US GOM could also materially change the company's profile and valuation. To capture this optionality in our valuation, we have estimated the potential value of the top five prospects (BM-S-22 in Brazil, WA-390 and WA-404 in Australia, Block 54 in Libya and Cape Three Points in Ghana)on an unrisked basis, with a valuation range of between $38 and $92/share with a $65 midpoint.
Given the materiality of these projects, and the steady stream of news flow anticipated during 2008 we are comfortable with HES trading at 14.0 x 2009E earnings at our target price. We also note that it has higher depreciation than the peer group, so the EV/DACF multiple at our $150 target would be a fairly manageable 7.9x (peer average is about 6x). If HES's exploration portfolio did not have the potentially game changing prospects, we estimate that the stock would trade at $110-110/share, benchmarking against US peer OXY.
The risks to our price objective are (1) the oil and gas price and margin environment and (2) an unsuccessful exploration program.
FWIW, here is the 6/16/08 closing stock data on the BM-S-22 lease holders, XOM(40%operator), HES(40%), and PBR(20%).
The following 06/21/08 “One Big Field” story becomes somewhat intriguing when you consider the article I’ve posted below it entitled“Economic Value - Companies with areas in the pre-salt should negotiate projects- Claudia Schüffner 12/6/2008” which was translated from Portuguese by Google’s amazing foreign language translation program.
UPDATE: Brazil Min: New Brazil Oil Finds May Be One Big Field 06/21/08 2:10 PM EDT(Updates with more background) By Bernd Radowitz OF DOW JONES NEWSWIRES JEDDAH, Saudi Arabia -(Dow Jones)- Recent Brazilian oil discoveries may all be connected and form one big oil field, Brazil's Mines and Energy Minister Edison Lobao told Dow Jones Newswires in an interview Saturday. "There is a connection between them. It could be one big field. That's not absolutely proven, but there are signs that it could be one big field," Lobao said, when asked whether the Carioca, Guara and Bem-Te-Vi finds could form one massive oil field.
Haroldo Lima, the head of Brazil's oil agency ANP, in April had sent shock waves through the oil world saying that the area around the Carioca find by Brazil's state-run oil giant Petroleo Brasileiro SA (PBR), or Petrobras, could contain reserves of 33 billion barrels in oil equivalent. Petrobras has a 45% operating stake in Brazil's BM-S-9 oil block, with BG Group PLC. (BG.LN) holding another 30%, and Spain's Repsol YPF SA (REP) with 25%.
Lobao didn't directly confirm Lima's estimate but said he "hopes" that reserves around Carioca "are more than that." Petrobras last week said it struck oil in a second well in the BM-S-9 block, called Guara, after having announced the Carioca find last year. The company also said it found oil at Bem-Te-Vi in the adjacent BM-S-8 block, where Petrobras is the lead operator with a 66% stake, while Royal Dutch Shell PLC ( RDSA) holds 20% and Portugal's Galp Energia has a 14% stake.
Also, Exxon Mobil Corp. (XOM) plans to drill a well this year at the BM-S-22 block, which is adjacent to Guara. Exxon has a 40% operating stake in BM-S-22, while Hess Corp. (HES) holds 40% and Petroleo Brasileiro, or Petrobras, holds the remaining 20%.
The minister added that it is possible that Carioca, Guara and Bem-Te-Vi are connected to the nearby Tupi field. Petrobras last year said it estimates recoverable reserves at Tupi of up to 8 billion barrels of oil equivalent. The company plans to start a long-term production test at Tupi next year with initial production of 30,000 barrels a day that will ramp up to 100,000 barrels a day from late 2010. Eventually, Tupi could pump 1 million barrels a day, the company said.
Loboa said he thinks Carioca could start producing in about five to six years, and that the new Brazilian oil discoveries "without doubt will contribute to push oil prices down." "Those are very elevated reservoirs," he said. The Brazilian minister added that Brazil is also helping to push oil prices down by rationalizing its energy use and by intensifying its biodiesel and ethanol program. That should help the Latin American country to have more oil left over for export, Lobao said. Lobao was speaking in Jeddah where he is attending a major oil producing and consuming nations meeting hosted by Saudi Arabia to address the issue of surging oil prices. -By Bernd Radowitz, Dow Jones Newswires; +34 618-526-915; bernd.radowitz@ dowjones.com
Corrected June 22, 200816:09 ET (20:09 GMT) - Exxon Mobil Corp. (XOM) plans to drill a well this year at the BM-S-22 block, which is adjacent to Guara. Exxon has a 40% operating stake in BM-S-22, while Hess Corp. (HES) holds 40% and Petroleo Brasileiro, or Petrobras, holds the remaining 20%. (In "UPDATE: Brazil Min: New Brazil Oil Finds May Be One Big Field," published at 1810 GMT Saturday, the percentage of stake holdings attributed to Exxon and Hess were incorrect).(END) DJNewswires06-21-08 1410ET
EconomicValue- Companies with areas in the pre-salt should negotiate projects- Claudia Schüffner 12/6/2008
The most famous is the area of Tupi, but it is increasingly clear that there are other areas with huge potential for oil and gas under a thick layer of salt, whose identification more complete only now beginning to leave more closed circles of the industry. . The company High Resolution Technology & Petroleum (HRT), specializing in search of petroleum systems, has a map which enabled the reserves were calculated, and the location of the pre-salt structures, building upon seismic data, geological and geochemical of the entire pre - of salt basins of the Holy Spirit, Campos and Santos. . The geologist Márcio Mello, president of HRT estimates of potential reserves of 50 to 70 billion barrels of oil and gas, similar to the number of Petrobras.
A careful look at the potential of pre-salt (with their locations) reveals a hitherto spoken little problem: the huge reserves stretching for different blocks already awarded for various private companies, and sometimes also extends to areas that still belong to the Union -- Because they were not licitadas and therefore are not subject to grant. This vai require companies that received the grant of these fields negotiate to reach an agreement on the project for developing the production of oil and gas in place and the planned investments, to prevent a company "drene" the reservation of another bloc. In the market of oil, this is called "unitization."
This is envisaged in the Petroleum Law (9.478/97). She says that "when it comes to fields extending for blocks neighbours, where dealers act different, they should conclude agreement for individualization of production."This is the Agreement on Unitização (unitization agreement) and if the Union is a party, will be represented by the National Petroleum Agency (ANP). If the shareholders have not reached an agreement in time fixed by the regulatory agency, the single paragraph of Article 27 of Law says that it is up to the ANP determine, "based on arbitration award, as will be equitably appropriate the rights and obligations on the blocks, with based on the general principles of law applied. "
Negotiate a unitization is common even among countries where the fields stretching for borders. In Brazil only one agreement has been signed so far, among the small Aurizônia and Petrobras, for individualization of production in the field of Lorraine (former BT-POT-10) in Rio Grande do Norte. According to sources heard by value, three others are under negotiation, between Petrobras and the members of the BC-2 (the French Total), the BC-10 (Shell) and BM-CAL-4 (involving than the state to El Paso and Queiroz Galvão).
The map indicates that the HRT near the area of Tupi there is another giant reservoir that is part of a single oil system, called "Sugar Loaf" by one analyst, called the Iguassú in Petrobras. The holes made on site until now confirm that the seismic pointed: we found the "prospectus" (name given to tanks not yet declared commercial), Wow, Bem-Te-Vi, Carioca and Guará, all operated by Petrobras.
A neighbouring block, the BM-S-22, is operated by Exxon (40%) with the shareholders to Hess (40%) and Petrobras (20%) and begin to be drilled day August 19. The surveys of HRT suggest that the Exxon's block is almost all within the "Sugar Loaf." But the reserve extends until much further than the limits of the block. The first results should be known two months after the start of drilling and is expected to huge volumes. Márcio Mello says that studies done so far indicate that there may exist only something close to 40 billion barrels of oil.
Only the reserves that are still in areas of the Union is estimated between 8 and 12 billion barrels by Mello. It was this area that yielded the controversy involving the director-general of the National Petroleum Agency (ANP), Haroldo Lima, who mentioned the existence of 33 billion barrels in place, citing an article in the publication "World Oil".
Confirmadas the suspicion that the Sugar Loaf is a complex involving several reservoirs connected, it will be larger than the area of Tupi, "several times" according Mello, given the greater depth. Tupi is between 5 to 8 billion, with the bulk vai depend on the confirmation of the existence of two other fields below what has already been confirmed by Petrobras. Jose Formigli, executive manager of the area of exploration and production of Petrobras for the pre-salt, explains that the two reservoirs below have different characteristics of the first.
The calculations of HRT were based on three-dimensional models of petroleum systems and 3D seismic of CGG-Veritas. With them the company did the project to quantify reserves of the so-called "cluster" of the Santos basin. The map, which the HRT withdrew some data deemed confidential by the company, is alongside.
If the complex Sugar Loaf has reservoirs connected encompassing four blocks with different partners, these companies will have to discuss the unitization. The discussion, if necessary, will involve Petrobras, BG, Repsol, Exxon, Hess, Galp (which controls the Petrogal) and Partex, a company which belongs to the Portuguese Calouste Gulbenkian Foundation.
Generally, the regulatory agency to intervene in a unitization only if the parties fail to reach consensus.There is, however, legal issues that are not yet clear.One is what to do with areas that are still without concession and are held by the Union within the range pre-salt.
Yesterday, the actual director of exploration and production of Petrobras, Guilherme Estrella, mentioned the subject in speech in the Brazilian Institute of Petroleum (IBP) saying that the continuation of some reservoirs in areas within the Union may be "a complication", referring - if the negotiations that will be needed. But completed saying that the PNA "has all the tools" to settle the issue.
Consultada on the subject, the ANP reports that the "existing law provides that each operator must assess the part of the deposit which is in its block and inform the agency that it extrapolates to the block of neighbouring operator. The operator neighbour must do the same assessment procedure in the field it deserves. This is done to begin the process of unitization between the parties. The ANP must join the process and in case of deadlock must act. " Therefore, it continues, "when the deposit extends for an area of the Union is the idea that the same process as part of the operator was, by the ANP." Again according to the agency, the procedures for unitization of the area are under consideration. "There is a group studying the matter and must leave a new regulation for this." But that, according to ANP, does not apply to pre-salt.
The lawyer Alexandre Chequer, the office Tauil, Chequer & Mello, coupled with Thompson & Knight LLP, thinks in the case of areas of Tupi and blocks of Sugar Loaf the current legislation establishes two paths. "Either the ANP lawful union of the area or she negotiates the unitization as a part, representing the state," he says. Sonia Agel, former prosecutor-general of the ANP, has the same opinion. Licitar is the path within the law. It would be more conventional to do. But I see no difficulty in making an agreement between the parties provided that the Union is duly compensated," she says. The interpretation of the ANP differs from all previous ones.
It is not difficult to imagine how this would be disputed area if the auction. For now and until order contrary, the 8 th round of the ANP will not be resumed and the 10 th will not be held this year, for the first time since the creation of the ANP. The decision will be the National Energy Policy Council (CNPE), chaired by the Minister of Mines and Energy, Edison Lobão. Chequer indicates problems if the area is in the hands of the state. Among them the responsibility for the marketing of oil and source of resources for investments. "This (investment) is not object of the ANP, created to hire and supervise activities of exploration and production," says Chequer.
The subject arises in the midst of the uncertainties thrown on the sector of oil from discussions on increased taxation and change the model - granting to the sharing of production.The latter is advocated for the pre-salt by the president of Petrobras, Jose Sergio Gabrielli. If this is the model chosen, and ANP has already expressed against it would be necessary to define which state company may represent the government in contracts for sharing.
Petrobras would like to be that company, but the contrary point out that the Union has only 32.2% of the total capital of the company, holding the control by 55.7% of the shares. The rest is in the hands of BNDESPar, foreign holders of ADRs on the New York Stock Exchange and other private shareholders, which would indirectly benefit from the sale of mineral resources that are a public good.
Yesterday, the director of exploration and production of Petrobras, Guilherme Estrella said yesterday that the company could produce between 2015 and 2020 at least 500 thousand barrels of oil daily in the field of Tupi. Today the state produces around 2 million barrels of oil per day in the country. According to the director, the company put at least five ships platforms (FPSOs) producing in the area from 2015. Currently, Petrobras has three probes exploring the blocks of pre-salt, but Estrella said that next year will reach two more probes for use only in Tupi, and a third will arrive in 2010.
Estrella estimates that only wells in the test of long duration and the pilot project, the consortium has the right to exploitation of Tupi (Petrobras, BG and Galp) vai spend about $1 billion with only drilling. Jose Formigli, avoided giving the total cost of projects, but said that both the test of long duration as the pilot project be sustained even with a barrel of oil to $ 35. Today, the commodity closed worth more than $ 130.
MADRID (Dow Jones)--Exxon Mobil Corp. (XOM) Chief Executive Rex Tillerson Tuesday stressed the need for regulatory stability in Brazil, given the expected high cost to develop promising new oil fields in the country. "Brazil's government said it will honor existing contracts," Tillerson said. "I'm pleased to hear they will keep existing agreements." He spoke at a press conference during the World Petroleum Congress that started here Monday and lasts through Wednesday. In light of recent massive oil discoveries in the pre-salt oil area in Brazil's Santos Basin, the government is considering a change in the country's oil legislation in order to secure a greater government stake in new oil projects.
Oil found in the pre-salt area is at water depth of more than 2,000 meters and a further 4,000 to 5,000 meters below sand, rocks and salt - making possible production challenging and expensive. "We're still in the early stages of this new play," Tillerson said. "Technologically, it's going to be one of the most difficult in the world, and one of the most expensive." ExxonMobil has a 40% operating stake in Brazil's BM-S-22 block, which is adjacent to the BM-S-9 block where state-run oil company Petroleo Brasileiro S/A (PBR) has hit oil in the Carioca and Guara wells. The head of Brazil's petroleum agency in April said the area around Carioca could contain 33 billion barrels in reserves.
The BM-S-22 is also close to the Tupi find, where Petrobras last year said it estimates recoverable reserves to be up to 8 billion barrels of oil equivalent. Exxon Mobil earlier said it will drill a well this year at the BM-S-22 block. Hess Corp. (HES) has a 40% stake in the block, while Petrobras holds the remaining 20%.
Brazil's Energy Minister Edison Lobao has suggested creating a new company that is 100% state-owned and would ensure profits from the pre-salt play remain in Brazil, Brazilian newswire Estado reported Monday. The new company would oversee the pre-salt concessions and hire private companies for production there as service providers. In November, the government cut out 41 promising oil blocks from an upcoming oil and gas exploration and production block auction to guarantee high enough revenues for the state.
Brazilian President Luiz Inacio Lula da Silva said last year that those blocks in the pre-salt play that have already been auctioned off won't have their contract terms changed. Christophe de Margerie, CEO at French oil company Total SA (TOT), said at the same press conference Tuesday that he regrets his company hasn't worked closer with Petrobras to be part of the pre-salt oil developments and that he would be happy if Total could still participate. The finds are "probably some of the largest discoveries made in the past years," he said.
When presenting the annual medium-term outlook of the International Energy Agency, the editor of the report, Lawrence Eagles, said that while non-Organization of Petroleum Exporting Countries' oil output is expected to decline until 2013, new oil developments such as Brazil's Tupi could revert that situation toward the middle of the coming decade. -By Bernd Radowitz, Dow Jones Newswires; 34 609-590-277; bernd.radowitz@dowjones.com
see- http://www.djnewsplus.com/al?rnd=tsYHdg/NpAyc+zyVAbSVyA==
also see
PETROBRAS: CARIOCA RESERVE ESTIMATE UNLIKELY IN '08
MADRID (Dow Jones)--It's unlikely that Brazil's state-run oil firm Petroleo Brasileiro SA (PBR) will make a reserve estimate for its massive Carioca field this year, Exploration and Production Director Guilherme Estrella told Dow Jones Newswires Monday. A reserve estimate for the promising Carioca discovery in Brazil's Santos Basin depends on a previous approval of an evaluation plan for the area by Brazil's National Petroleum Agency, or ANP, Estrella said.
"We're currently negotiating an evaluation plan for Carioca and all the pre-salt area with the ANP," Estrella said on the sidelines of the World Petroleum Congress that started here Monday and lasts through Thursday.
He added that the company currently is drilling at two exploration wells in the area, in the Jupiter gas field, and at the Iara accumulation close to the Tupi field.
Petrobras, as the oil giant is known, has said it will start a long-term production test at Tupi in early 2009, and aims at producing an initial 100,000 barrels a day from the field beginning in late 2010. The company in November said it estimates recoverable reserves at Tupi of up to 8 billion barrels of oil equivalent, or BOE.
HLW Note. Its Interesting to observe that a lot of this "regulatory stability" stuff was appearing in the Brazilian Portuguese language press way back in December of 2007. See EconomicValue- Companies with areas in the pre-salt should negotiate projects- Claudia Schüffner 12/6/2008 article in my BM-S-22 Road Map 6/23/08 msg # 87 at http://www.investorvillage.com/smbd.asp?mb=4307&mn=87&pt=msg&mid=5038162
Depending on what XOM's West Polaris drillship discovers with its evaluation wells this year, FWIW, IMHO all this constant PBR and Brazilian talk about "formal cooperation among the seven companies holding concessions in the region" is not going to turn out well for the non-Brazilian holders (XOM 40% and HES 40% ) of the BM-S-22 block concession, that may or may not turn out to be the most potentially lucatrive oil producing block in the Sugarloaf Santos Basin area.
DOW JONES NEWSWIRES August 13, 200812:36 p.m. EDT
SAO PAULO (Dow Jones)--Oil discoveries in the so-called pre-salt layer off the southeastern coast of Brazil are likely to be contiguous, a factor that will trigger formal cooperation among the seven companies holding concessions in the region, a Brazilian oil company expert said Wednesday.
"Recent seismic studies indicate a high degree of contiguity among sites around the Tupi well," said Eduardo Molinari, exploration and production coordinator at Brazilian state-controlled energy company Petroleo Brasileiro SA (PBR), or Petrobras. Molinari made the comment at a meeting with financial-market analysts.
The Tupi discovery was announced by Petrobras last year. At that time, officials said it could contain between 5 billion and 8 billion barrels of crude oil. Those figures, however, were only estimates, with a formal statement on reserves at Tupi only expected in the second half of 2009.
Following the Tupi discovery, oil discoveries at other wells off the southeastern coast were also announced by Petrobras and by some of the private companies also holding exploration concessions in the area. No formal estimates have been issued about reserves at any of the sites.
Molinari said that, under Brazilian law, concession areas found to be contiguous become the object of joint exploration by companies holding the various concessions. "This is to avoid predatory drilling by one company in another's area," the executive said.
Molinari said "the companies operating around the Tupi site will have to sit down and talk soon."
The oil finds are located in an offshore area under the Atlantic seabed beneath a large salt layer.
Seven companies hold concessions or stakes in concessions in the region. They are Petrobras, BG (BRGYY), Galp (GALP.LB), Repsol (REP), Shell (RDSA), Exxon (XOM) and Amerada Hess (HES).
The note of caution*** in CITI’s London oil analyst’s Santos basin 8/14/08 report highlights what IMHO became a major risk for HES and PBR investors after I read the English translation of a June 12, 2008 Portuguese article that I posted in its entirety on June 23, 2008 in msg #87 the BM-S-22 Topic thread at
http://www.investorvillage.com/smbd.asp?mb=4307&mn=87&pt=msg&mid=5038162
Although Brazil is far from being as anti American and anti-West country as say Venezuela,**** it does not have as private investor friendly and investment stable regulatory and governmental environment such as in countries in the United Kingdom, Western Europe and Japan.
All this senior PBR management and Brazilian ANP oil regulatory agency, talk about “continuity across structures”, protracted “unitization” process, and “sale of mineral resources that are a public good” do not bode well for the holders of the BM-S-22 Block, if in fact Block BM-S-22 turns out to have “the largest share of the geological structure” as stated by geologist Arthur Berman in his 4/17/08 Dow Jones interview** referred to in my June 13, 2008 Msg#85 in the BM-S-22 topic thread.
(Seehttp://www.investorvillage.com/mbthread.asp?mb=4307&pm=76&nm=100&sync=1&tid=5038162&showall=1 for the whole thread that I started back on May 26, 2008.)
It is not going to be an easy or simple task for senior PBR management to equitably and fairly represent all of its various constituents. They may have many conflicting interests and views, depending on the degree of certainty of the geological data obtained from all of the exploration and appraisal wells being drilled in the “Sugarloaf “ Santos basin.
Because of the “Mega Bucks”involved in developing these ultra deep water oil fields, plus the potential huge oil revenues involved, the ‘unitisation process’ is sure to be contentious and protracted. IMHO, if you are a HES or PBR investor the “BM-S-22 Topic” on this Investor Village Stock Message Board is a must read, understand, and keep it file.
**Therefore, now would be a good time to review my “BM-S-22 Road Map” post at:
http://www.compositecatalog.com/magazine/MAGAZINE_DETAIL.asp?ART_ID=3450&MONTH_YEAR=Feb-2008, and the April Dow Jones follow-up telephone interview with him—that contained the following comments – "Of the blocks that have already been licensed, the BM-S-22 block seems to have the largest share of the geological structure, Berman said. ‘If I were to drill a well, it would be in the BM-S-22,’ he said." - Experts, Credit Suisse Suspect Brazil Made Gigantic Oil Find - 4/17/2008 6:52:00 AM - RIO DE JANEIRO (Dow Jones) –
Here are key some excerpts from the CITI August 14, 2008 Santos Basin Report.
(Also see “CITI 8-13-2008 Comments On PBR 2Q08 Conference Call”August 17, 2008 msg#784 on the PBR stock message BB at http://www.investorvillage.com/smbd.asp?mb=4277&mn=784&pt=msg&mid=5428237 for excerpts from the CITI 8/17/08 publication** referred to below together with some additional comments by me.)
CITI - 14 August 200813 pages - Oil & Gas Daily -News & Comments- Europe Oil Companies – Majors Industry Focus Europe Oil & Gas Daily 14 August 2008 Event: Santos basin update David J Thomas +44-20-7986-4030 david.j.thomas@citi.c
Event Santos basin update- Comment:
Petrobras held its 2Q2008 results conference call yesterday (**see attached publication
https://www.citigroupgeo.com/pdf/SLA13778.pdf), and a few interesting comments can be expected to read across positively to stakeholders with direct or vested interests in the development of the sub-salt discoveries that have been made in the Santos basin.
Petrobras intends to conduct high-definition seismic testing of the sub-salt basin to help determine whether the discoveries that have been announced to date (Tupi, Carioca, Guara, Iara, Bem-te-vi, Caramba and the upcoming 'Sugar Loaf prospect) may in fact all be part of one connected structure.
Comments from Petrobras' co-ordinator of exploration and development suggest that current seismic data already implies continuity across the structures drilled to date. Should this be the case it would support the notion that the sub-salt could yield over 30 bn boe of oil and gas reserves. This scenario would be positive for Petrobras, alongside the international oil companies with licence interests in the Santos basin – BG (BG.L; £10.71; 2M), Repsol (REP.MC; €20.51; 2M), GALP (GALP.LS; €12.79; Not Rated), RDShell (RDSa.L; £18.08; 1L), Hess (HES.N; US$101.87; 2H), ExxonMobil (XOM.N; US$78.17; Not Rated).
*** However as a note of caution, should the discoveries be inter-connected there could be delays to development owing to the need to licence open acreage which would straddle the structure, as well as a negotiation over off take rights through what may be a protracted 'unitisation' process. The next key data point will be the exploration well planned to commence in the Exxon Mobil operated BM-S-22 licence in September, results from which will be watched eagerly but which may not be announced before end-year.
Petrobras re-presented its drilling plan, which shows that nearly 60 deep water drilling units may be operating offshore Brazil by 2017, with 28 new units to be leased from 2013 onwards. It would be reasonable to assume that much of this drilling capacity will be for development of the resources discovered to date, and thus there will be a call for supply, construction and installation of the offtake facilities, from wellheads and well control systems through flowlines, risers and umbilicals to surface processing and storage.
The oilfield service industry, already attracted towards Brazil like moths to a lantern, will undoubtedly remain bullish about their prospects for several years to come.Seehttps://www.citigroupgeo.com/pdf/SEU17477.pdffor full report.
Good Luck and Good Investing.HLW33338/17/084:00 p.m. EDT
Re: BM-S-22 Road Map (Drilling to Start in October)
Dow Jones NewsPlus North American Equities
Brazil Petrobras: Drill Rig Expected Soon At BM-S-22 Block
As of 6:22 p.m. EDTTuesday, September 16, 2008
DOW JONES NEWSWIRES
RIO DE JANEIRO (Dow Jones)--A rig to drill test wells at the BM-S-22 block in Brazil's promising pre-salt region is arriving soon, which will complete test drilling in the key SantosBasin, an executive with state-run energy giant Petroleo Brasileiro (PBR) said Tuesday. "The drill rig is arriving at the block now," said Jose Formigli, Petrobras' executive manager for pre-salt exploration and production.
According to Formigli, drilling at the block was expected to start by October. ExxonMobil Corp. (XOM) is lead operator in the block, with an 40% stake. Hess Corp. (HES) also has a 40% interest, while Petrobras holds a 20% share.
The BM-S-22, which some experts contend holds the most promise in what could be one massive, contiguous oil deposit, is the final block left to be tested in the SantosBasin's key pre-salt region. Concession holders in the neighboring BM-S-8, BM-S-9 and BM-S-21 blocks have all announced discoveries of light crude in recent months. -By Jeff Fick, Dow Jones Newswires; 55-21-2586-6085; Jeff.Fick@dowjones.com
Brazil Petrobras: Pre-Salt Output To Be 'Significant' By 2017
As of 6:28 p.m. EDTTuesday, September 16, 2008
DOW JONES NEWSWIRES
RIO DE JANEIRO (Dow Jones)--Crude oil output from Brazil's pre-salt region should reach "significant" levels by 2017, with the introduction of 11 production platforms in the area, an executive with state-run energy giant Petroleo Brasileiro (PBR) said Tuesday. "We'll reach a significant mark by 2017, and production will continue to rise from there," said Jose Formigli, executive manager for Petrobras' pre-salt exploration and production.
Formigli made the comments on the sidelines of the Rio Oil & Gas Conference, which runs through Thursday. Between 2007 and 2013, Petrobras will bring online eight new floating, production, storage and offloading vessels, or FPSOs. The FPSOs will each produce about 120,000 barrels a day, Formigli said In addition, three pilot production programs will start in that same period.
The first pilot production will begin at the massive Tupi field by December 2010. It's expected to produce 100,000 barrels of oil and 4 million cubic meters of gas a day. Locations for the two other pilot production tests haven't yet been chosen, Formigli said.
According to a presentation Tuesday by Formigli, evaluation and development plans for the Carioca, Parati, Guara and Caramba fields have been approved by the Brazilian Petroleum Agency, or ANP. Petrobras is still negotiating with the ANP on plans for the Bem-te-vi, Iara and Jupiter fields.
Last week, Petrobras announced recoverable reserves for Iara at between 3 billion and 4 billion barrels of oil equivalent. Iara is located in the same BM-S-11 block as Tupi, which has estimated recoverable reserves of between 5 billion and 8 billion BOE. By Jeff Fick, Dow Jones Newswires; 55-21-2586-6085; Jeff.Fick@dowjones.com
