The Barrels from Brazil, Part 2  

This week's high profile oil discovery is Petrobras' Carioca find, with inital press reports talking about 33 billion barrels of oil (about 1 year of global oil consumption at current rates).

This is already leading some of the more ill-informed analysts to squawk (once again) that peak oil theories can be laid to rest, which continues to amaze me (as per previous kerfuffles over the Bakken, Jack and Tupi finds - or even theories about the Falklands or Aceh).

At this point the reports are unofficial and apparently based on a very small set of exploratory wells that have been drilled. The oil is far offshore, in very deep water and the field geology is largely unknown. Anyone has has invested in companies touting big deepwater finds would be wary of the frequent disappointments that occur over time - Santos' Jeruk field was a very good learning experience for me a few years ago - initial speculation about 500 million barrels subsiding to talk about 50 million barrels before eventually being discarded as uneconomic because of the complex geology.

Once you take into account flow rates and the cost and time taken to develop this sort of field, you realise the impact that it has on an oil depletion model isn't all that significant - its not like the cheap, easy to extract (security concerns aside) and very large volumes of oil under Iraq - its just a way of making decline slower than the more doom laden peak oil predictions suggest by replacing declining production from existing, depleting fields with high cost offshore oil.

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. ...

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. ...

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. ...

``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.