Will a new Brazilian oil discovery save Big Oil?
The Big Oil industry has been hurting a bit over the last couple of weeks, what with companies like Exxon (XOM), Chevron (CVX) and BP (BP) having a hard time on the stock market. Rising oil prices (even with recent corrections on the commodities market) have cut into margins, and refinery maintenance and other issues are also reducing profit margins.
But a recent Brazilian oil discovery may help give Big Oil a boost. Word is coming back that Tupi, a mostly exploratory oil field off the coast of Brazil, has plenty of oil reserves. And that once one gets beneath the sea salt layer off the shore, there is some light sweet crude in addition to the heavy stuff. The Financial Times reports on the new Brazilian oil discovery:
The discovery suggests that all the oil so far produced off Brazil’s coast has seeped through the salt layer, picking up impurities along the way – which is why it is low-quality, heavy crude. The oil under the salt is lighter, high-quality oil. And there is a lot of it. “It’s very big. I can’t say more than that,” Mr Gabrielli said.
Exploration is now being considered for the areas around Tupi, and there is hope that production in Tupi could start, with 100,000 barrels a day, in 2011.
But getting there could be expensive. Petrobras (PZE), the state-controlled oil company in Brazil, or other developers, could lay out $50 billion for development, since there are serious engineering issues with the salt layer.
This discovery, though, has Big Oil cautiously optimistic about a great oil supply from a source more friendly to the U.S. than many other oil producing countries.
Disclosure: I do not own any oil stocks.