Brazil, the New Oil Superpower

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The prized light crude Petrobras is finding may soon place Brazil "somewhere between Nigeria and Venezuela" in terms of proved reserves, Petrobras CEO José Sérgio Gabrielli said last week. Nigeria now holds around three times Brazil's 12 billion barrels of proved oil and gas, while Venezuela has around seven times as much.

In one rough estimate, Petrobras' Repsold says the company might need to drill 100 wells to develop Tupi. Shaw believes that means Tupi may cost between $50 billion and $100 billion to develop. A first well at Tupi cost $240 million and required two years to drill. "But we're getting much faster," Repsold says. Subsequent wells have cost around $60 million apiece and taken six months or less. Petrobras declined to estimate what it will cost to develop Tupi, saying more study and drilling are needed.

"Nobody ever produced oil at these depths," says Cambridge's Aldebert. "Petrobras will do everything in its power to be the first, but any major dip in world oil prices could hurt the plans."

Good News for Oil Services

For now, with oil prices near record highs, the new discovery is good tidings for both Brazil and companies in Texas, headquarters for the industry that builds and leases offshore drilling rigs capable of reaching underneath massive offshore salt, to depths of 30,000 feet or more. Only about 40 such rigs exist in the world today, operated by Texas companies including Transocean (RIG) and its merger partner GlobalSantaFe (GSF), Noble Corp. (NE), Diamond Offshore Drilling (DO), and Pride International (PDE).

Before oil production starts at Tupi, companies that build and service massive offshore oil platforms—from shipyards in Singapore to Texas, and engineering firms and drilling experts such as France's Technip or Houston-based Schlumberger (SLB) and Halliburton (HAL)—may also reap its rewards. If Tupi pumps roughly 1 million barrels a day, it may require five or six of the largest capacity offshore platforms available, which currently cost more than $1 billion apiece. Petrobras' largest offshore platform can now handle 180,000 barrels per day.

Geologist Roberto Fainstein, whose seismic imaging work at oil-field services company Schlumberger helped Brazil to discover its massive new reserves, says the subsalt find will "lead to a rush in this kind of drilling worldwide." Brazil's discovery may quicken subsalt drilling in the Gulf of Mexico by oil majors and Mexico's state-run oil giant Pemex. A salt layer offshore West African countries including Angola, Gabon, and Equatorial Guinea is "virtually identical to Brazil's," Fainstein says, "so companies will race to begin drilling it."

Avoiding the "Oil Curse"

Subsea salt layers are present in all three of the world's biggest offshore oil areas: the Gulf of Mexico, West Africa, and Brazil. So far, subsalt oil production has been executed only in the Gulf of Mexico, near the Texas and Louisiana coast where companies including BP, Shell, ExxonMobil, Chevron, and Anadarko Petroleum (APC) have all made significant discoveries.

In the last decade, private oil majors have invested several billion dollars to find oil offshore Brazil, but none have discovered reserves remotely as large as Tupi. "If Brazil takes its new oil off the table for international oil companies, it will send shock waves through the industry," says Wood Mackenzie's Shaw.

Contrary to the price-hawk position of Venezuelan President Chávez, who recently said oil-producing countries should try to "stabilize" oil prices near $100 a barrel, Lula said he hopes Brazil's new oil will someday help to bring global oil prices down from their current levels, allowing poor countries to buy more of it.

"Brazilians are right to be euphoric," says Peter Hakim, president of Washington-based think tank Inter-American Dialogue. Because Brazil has discovered its new oil after the country's economy has been largely diversified and industrialized, "Brazil can avoid the oil curse, the dependency on one resource that dominates countries like Nigeria and Venezuela."

Schneyer is a special correspondent based in Rio de Janeiro.