Download now: Cannabis Cash

Developing the Tupi Oil Field

Petrobras's Offshore Gamble

Written by Keith Kohl
Posted April 27, 2009

Judging from the amount of responses I read last week, it's fair to say my readers can be very opinionated.

As you remember, the federal court of appeals yanked the DOI's five-year oil and natural gas leasing plan right from underneath its feet. And truth be told, the last time I saw that kind of animosity was when I sat next next to a group of Yankee fans at Fenway Park.

But just two days after the replies came flooding in, I came across another news release. Right on the heels of the court decision, Florida lawmakers gave the green light to lift the state's ban on drilling off their coast. Furthermore, the house gave the governor and his cabinet power to approve drilling proposals between 3 and 10 miles offshore.

The sudden interest in developing Florida's offshore oil and gas comes with the hope of millions in revenue for the state budget. Naturally, the bill is being lobbied and funded by an unidentified group.

I'm curious as to how many of you are supporting this kind of move. The image of oil platforms dotting the horizon comes to mind. You can leave your thoughts by clicking on the comments section below. Although I never want my readers to pull any punches, just try to keep the commentary publishable (also make sure your caps lock button isn't stuck).

Oil Afloat at $50

If you've been following oil prices closely today, you've probably noticed the $50/bbl mark has been teasing us all morning. After dropping as low as $48.01 per barrel during trading earlier, prices finally found their footing.

According to the media, the latest swine-flu outbreak is the reason for falling crude prices. Their train of thought is that the swine-flu is causing a panic and limiting air travel, thus curbing jet fuel demand and the world economy.

One gentleman in particular told me this single event will flush oil prices back down into the $30 price range.

Personally, I'm not buying it.

For starters, crude oil has nearly erased the losses from this morning's trading. The next test is whether prices can break $60 per barrel this time around. Over the last three weeks, oil bounced as high as $56.10 per barrel.

So if it's not the pig-flu frenzy in the media, what's keeping crude down?

~~ad_0~~

Let's take a look at U.S. demand. After all, we are the undisputed leader in global oil consumption. And for the last seven consecutive weeks, the EIA has reported a build in inventory levels. Last week, U.S. crude oil stocks reached 370.6 million barrels. That comes out to an increase of 3.9 million barrels over the prior week. Furthermore, that's 54.5 million barrels higher than a year ago.

Needless to say, we're well above the five-year average. In fact, the last time our crude inventory was this high was on September 14, 1990 — nineteen years ago.

Meanwhile, OPEC has been unusually quiet lately. Members insist that $70 per barrel is where they'd like to see prices, but $50 per barrel is "reasonable." Does anyone else recognize this oil dance from before? When oil was at $35 per barrel, OPEC felt $50 was the correct price. I have a feeling that if oil prices were $70 a barrel right now, they would be pushing for $90 per barrel.

Remember, OPEC still hasn't reached the production cuts announced in 2008. And depending on whom you talk to, OPEC members have cut between 80-90% of the proposed cuts so far.

But not all the news I come across is bad. . .

Brazil's Tupi Success

The Tupi offshore field isn't new to us. I'm certain you've heard about this huge offshore discovery at least once over the last year. In fact, it's one of few areas with a bright production outlook. The field is expected to start pumping oil this Friday.

It's also opening up a door for investors.

Before I go any further, I think it's imperative you don't get roped-in from the wild numbers. I've seen some ridiculous production numbers associated with the Tupi field. The one that comes to mind immediately was in an email boasting that the Tupi field will satisfy the entire U.S. demand for the next decade.

First of all, I think my readers are intelligent enough to know the Tupi field won't be producing upwards of 20 million barrels per day this year. Or ever, for that matter. It simply won't happen.

However, we can expect some big action in Brazil. Last week, Petrobras announced the company will be looking for approximately 240 offshore vessels to help develop their offshore resources. We're talking about everything: drill ships, supply ships, storage vessels, etc.

Increasing their oil production will come at a cost. In this case, Petrobras is investing nearly $200 billion with the target of increasing production by 700,000 barrels per day over the next four years.

Since contracts could begin as early as May, there's still a chance for investors to get a piece of the action. Petrobras expects to almost double their number of offshore rigs in the next two years. Next week, I'll tell you which one of those offshore drillers I'm picking up before those contracts come out.

Until next time,

keith kohl

Keith Kohl

Energy and Capital

Hydrogen Fuel Cells: The Downfall of Tesla?