Posts Tagged ‘energy’

Brazil remains bullish on oil as Petrobras sets new production record in March

offshore-oil-rigPerennial favourite Petrobras (NYSE : PBR), has announced that in March of this year, it surpassed February’s output record by 52,00 bpd. Last month, the Brazilian oil giant produced a record 1.99 million bpd from its domestic holdings. The increase has been attributed to a number of new wells in the offshore Campos Basin being brought into commercial production. Petrobras has also reported domestic production of combined oil & gas for March reached 2.3 million bpd of oil equivalent, a 9.5% month on month icrease, adding in international operations, brings an enviable 2.5 million bpd production average for the month of March.

Following up on Petrobras’ unveiling of its $174 Bn, five year investment plan, this can only be good news for investors, as the company has based its 2009-2013 plan on Brent crude running at $42 a barrel, with financing needs for 2009 based on Brent averaging at $37 a barrel. With Brent crude trading at $50.46, depressed fears over swine fever, a fiar cushion is in place.

On May 1st, President Lula will officially open Petrobras’ new Tupi operations.  Tupi,which is located in the pre-salt region and is estimated to contain between 5 billion and 7 billion barrels of crude, will initially pump 15,000 bpd through a test phase, finally ramping up to 100,000 bpd in 2010. The pre-salt region covers an offshore area 800 kilometers long and 200 kilometers wide between the states of Espirito Santo and Santa Catarina, is estimated to contain up to 80 billion barrels of light crude under a thick layer of salt far beneath the ocean floor.

As we previously discussed, the planned $175 Bn investment, is also good news for companies supplying the oil business. With offshore oil development vessels likely to be in high demand.

“In the next five to six years, we are looking for 240 different vessels… drillships, storage units, supply vessels, transportation vessels and others,” Petrobras CFO Almir Barbassa told reprorters at recent a seminar held in Seoul. “Petrobras will soon issue tenders for eight floating product storage and offloading units and seven drill ships”

Trading off a 52 week low of just $14.73, Petrobras is currently trading in the $32-$34 range (5 day spread) & the ADR has grown by 37% in the last three months of trading.

ABB : Switzerlands Sleeping Giant

abb1Swiss power & automation specialist ABB is moving from strength to strength with the recent announcement of a €550m contract which integrates with a green power project in Ireland. Irish system operator Eirgrid, has ordered a transmission system using HVDC Light (high-voltage direct current), an ABB technology with environmental benefits that include neutral electromagnetic fields, oil-free cables, low electrical losses, and compact converter stations. The solution will allow Ireland to expand wind power generation & via the new link, will enable it to import power from the UK as needed & to export power when it generates a surplus.

“We are delighted to partner Eirgrid for this project,” said Peter Leupp, head of ABB’s Power Systems division. “ABB’s HVDC Light technology will enhance the stability of both the Irish and U.K transmission grids, and also expand capacity for the use of renewable power.”

For those not in the know, ABB Ltd, is a global leader in power and automation technologies, enabling customers to improve performance while lowering potential environmental impact. The company has operations in 87 countries globally & currently carries a workforce of approximately 110,000 employees, delivering complex power projects into logistics, energy, industry & utility sectors.

This is just the latest in a string of deals that ABB (NYSE : ABB) has managed to pull together in the face of the turmoil in global markets. Looking at ABB’s press release pages, it is apparent that the company has capitalised on its almost unique position as a global player in its field. In 2009 alone, ABB has so far announced in the region of $2.3bn in new contracts, a strong performance in these troubled times. Referring to ABBs annual report (a weighty 7.4Mb file) from 2008, revenues rose 20 percent to a record $34.9bn as the company continued to drive growth & also managed to deliver on its strong order backlog, more on that later. Earnings before interest and taxes (EBIT) reached $4.6bn, with the company recording it’s second highest net income statement in its history, even after provisions taken in the fourth quarter, which saw the order book drop by 60% on 2007 Q4 earnings. Admirable stuff. Even more admirable is the fact that ABB exited 2008 with an order backlog in the region of $24bn, which is a huge cushion to take it through the troubled waters of 2009.

ABB is not however resting on its laurels, under the new management team of CEO Joe Hogan (recent head of GE’s Healthcare division), has reacted to the global shift, as ABB business is pretty much tied to GDP of the countries it operates in, Hogan has instigated a cost reduction plan that should pair costs by as much as $1.3Bn per annum. The company has recognised that its orders are down in Europe, as industrial & construction demand has dramatically slowed. Also in Asia, ABB has suffered, mainly due to the fact that the explosive growth in the region in 2007 could not be offset in 2008.

One area that I am sure ABB will be focusing on is Emerging Markets, which will need to continue expanding their power grids for years to come, while mature economies in North America and Europe will only look to smaller upgrades to legacy platforms. This can already be seen in recent wins in Mozambique, Kuwait, Oman, Saudi & South Africa. The company is also looking into how it may capitalise on the fact that countries must tackle climate change, if they are to continue to grow their GDP & satisfy growing consumer demand for greener technologies.

I feel that ABB is under recognised by the markets & looking at the ADR’s performance against the criteria above, can only come to the conclusion that it is severely undervalued at todays price of $13.50, having reached a 52 week low of $9.11. Past shrewd management of assets, coupled with a typically Swiss style of quietly acquiring smaller companies to either subsume competition or add to its technology base make ABB a winner for me. To that end, I instigated a buy on the ADR yesterday & am setting a target price of $25 by Q3 of 2009. I am also of the opinion that ABB will profit from some of the new energy projects that have been announced & which I have previously commented upon on MyStockVoice, particularly in the Brazilian Petrobras (NYSE : PBR) & the West African Total (NYSE : TOT) projects.

Venezuela : Chavez returning to dirty tricks ?

hugo-chavez-venezuela1For the last 4 years, soaring worldwide oil prices and 9% growth rates have underpinned President Chavez’s generous social programs & his (none too successful) campaign to build an international anti-American alliance. The oil windfall saw the socialist government of Venezuela threaten to divert oil exports from the US to competitors in China and India, even though the Asian markets would be costlier to serve. Currently 60% of Venezuela’s production goes to the States.

As if Venezuela were not doing well enough, the government then imposed crippling tax increases & royalties on the IOCs (International Oil Companies) working there. Snapping up majority shares in oil-producing joint ventures & effectively forcing the multinationals to either take smaller roles or leave Venezuela. Now with oil revenues failing due to lack of demand on global markets, Chavez looks as though he is turning his attention to agriculture.

Chavez is hugely popular with Venezuela’s poor due to his heavy spending on social services, however,  continued investment in social programmes is not sustainable with the crash in oil prices. Oil accounts for 94 percent of Venezuela’s exports and about half of the national budget. Chavez decided on Wednesday (04/03/09) to take over at least one rice plant owned by Cargill Inc, the largest U.S. agricultural company, extending his grip on food producers as the government seeks to slow inflation.

“We’re going to continue to tighten the screws,” Chavez said during a cabinet meeting that was broadcast on Venezuelan state television. “Begin the process of expropriating Cargill. This is a flagrant violation.”

Chavez, has also threatened to seize all plants run by Empresas Polar SA, Venezuela’s biggest privately owned company, in his push to increase state control of the economy. Venezuela has the highest inflation rate in Latin America, and food prices rose 43.7 percent in January from a year earlier. Over the last four years, following Chavez’s re-election as president, Venezuela has increasingly moved to a government-run economy, announcing takeovers in the electricity, cement, telecommunications and now food production industries.

In the 1990s, Venezuela offered discounted taxes and royalties to entice IOCs such as BP, ConocoPhillips, Exxon Mobil & Total to develop the Orinoco basin deposits. The Orinoco Belt holds over 1.2 trillion barrels of extra-heavy oil which is refined locally. Previous estimates claim that the Orinoco Belt may contain more than 250 bn barrels of recoverable synthetic crude, making Venezuela potentially the biggest source of oil in the world, topping Saudi Arabia. Following more than $16 bn of direct investment, four international “strategic alliances” began producing synthetic crude in 2001. Production now totals about 600,000 barrels a day, roughly one-quarter of Venezuela’s total output.

In May 2007, Chavez announced the nationalisation of oil assets in the Orinoco belt, prompting Exxon Mobil Corp. and ConocoPhillips to pull out of the country and seek international arbitration. Total remained & is still attempting to work under tough government constraints, which saw its stake in the Sincor project reduced from 47% to 30%. Massive revenues generated by high oil prices have managed to mask years of economic mismanagement. Currently, inflation stands at 35%, capital is fleeing the country & unemployment is rampant. Continued rhetoric about revolution, socialism and expropriation has caused foreign investment, which is vital to the oil industry, to dry up. Venezuela’s private sector recorded zero growth in 2008, according to the central bank.

Back to today & a reliance on his populist support seems to have forced, Chavez to maintain his 2007 pledge that the government would secure supplies of basic food staples, as the country experienced widespread shortages of milk, beans and rice. Chavez issued a raft of  decrees last year, increasing government control over food storage and distribution and allowing the state to jail company owners for hoarding. This week, he set new production quotas for food makers to boost supply of price- controlled foods. The Cargill seizure follows troops being deployed in rice plants across the country, in a blaze of publicity, claiming that private owned companies are hoarding rice stocks in order to manipulate prices.

“Cargill is committed to the production of food in Venezuela that complies with all laws and regulations,” Mark Klein, a spokesman for the Minnetonka, Minnesota-based company, said by email late yesterday. “Cargill expects the opportunity to clarify the situation with the government and is respectful of the Venezuelan government decision.”

Chavez hasn’t specified whether the Cargill expropriation order would apply to all of the company’s plants in Venezuela. According to Cargill’s Web site, it has operated in Venezuela since 1986, and runs 13 plants that produce foods including rice, pasta, flour and juice.

Meanwhile, Venezuela is courting Asian countries for FDI for future growth in the oil indusry, recently China & Venezuela announced a $12B pact for a JV in the Orinoco belt, part of China’s ongoing spree of buying into national projects. Vietnam via its state owned oil company PetroVietnam has also entered into a JV with Petrolos de Venezuela, where the expecation is to extract 200,000 barrels per day for export to Vietnamese refineries, as previously discussed. This follows inconclusive talks with neighbour Brazil regarding an accord with Petrobras, whcih would have seen the Brailian giant investing 40% into the construction of a $4Bn / 200,000 barrel a day refining operation.

With this latest bout of  “nationalisation”, Venezuela is surely set to lose more friends in the West & also on its doorstep. Chavez has been pouring billions into local economies to shore up Latin American support for his Bolivista government, but now the revenues have dried up, he is seen as a political blusterer.  It is clear that Asian nations starved of natural resources will make deals at favourable rates right now whilst oil prices are in a slump, however, it will be interesting to see which rabbit Chavez will pull out of the hat when oil goes back over $70 a barrel.

Total continues emerging markets investment & expansion

total-oil-logo1Total SA (NYSE – TOT), France’s largest company, announced the highest annual net profit in French corporate history last week, sounding a rare positive note in todays grim financial meltdown. In 2008 the firm made a profit of  €13.9 Bn ($18.0 Bn) thanks to record oil prices in the first half of the year, which helped offset the second half collapse in oil prices. Profits began to fall in the fourth quarter of 2008 as the credit crunch hit demand, sending crude prices tumbling. Total is now preparing for the future by investing in increased capacity in new fields, especially in Africa & the Middle East, whilst putting the brakes on production in Canada & the North Sea.

“Unprecedented volatility marked the 2008 market environment,” said Total chief executive Christophe de Margerie, noting that oil had peaked at about $150 a barrel last year before plunging to as low as $35

With regards to its North Sea operations, Total has reviewed its capital expenditure for 2009 due to the fall in oil prices. Senior vice president for Northern Europe, Michel Contie, remarked that an oil price of $40 per barrel was required to realistically develop new fields in the North Sea, as many new offshore discoveries are “not economic today.”  The Joslyn & Surmont heavy-oil ventures in the Canadian Athabasca project are among the “building blocks” for boosting output from 2016, the oil sands projects are expected to provide Total with almost 300,000 barrels a day of production capacity by 2020, as reported by Bloomberg : Total is “reevaluating costs, technologies, structure and timing of Canadian projects”

In a recent aggressive move, Total has offered to buy Canadian oil-sands explorer UTS Energy Corp for $ 617 million Canadian ($505 million), which rejected the bid as “inadequate.”  UTS has advised shareholders that the bid should be rejected, as the book value of the company is pegged at twice the unsolicited offer. Total reiterated today that oil sands need crude prices at $80 a barrel for investment, which to my mind displays that they are looking to bank up potential reserves for a time when oil demand will flip to the upside. Until then, Total looks as though it is banking on emerging markets to provide the spur to growth for the forseeable future.

In Nigeria, Total is the lead company in the Apko offshore oil field, where it is partnered with MSV’s favourite oil firm, Petrobras (NYSE – PBR) & state-owned Nigeria National Petroleum Corporation, the field is estimated to have reserves of up to 1.6 billion barrels of sweet crude in reserve. In order to help fund the project, the three existing shareholders agreed to auction off a 45% stake in the field to Indias state controlled ONGC for an estimated $2 Bn.

In Yemen, Total will soon start shipping liquefied natural gas from the Gulf of Aden, bringing into operation a $4 billion project begun less than four years ago. The shipments will make Yemen the newest member of the world’s small club of gas exporters & should earn the government as much as $50 billion in tax revenue over the next 25 years.

In Angola, as discussed in a previous post, Total is set to continue with a $9 billion investment to raise production, despite the huge drop in crude prices since July last year. In a joint venture with Chevron (NYSE – CVX) & others, the Tombua-Landana oil field is expected to come online, contributing a further 120,000 bpd to Totals existing operations. Meanwhile, Total’s third production hub in Angola’s offshore Bloc 17, is expected to begin pumping oil from depths of up to 1,200 metres,beginning in 2011, according to the company’s website. Presently, Total is the third biggest oil producer in Angola after Exxon & Chevron, pumping over 500,000 barrels per day.

During his presentation lat week, CEO  de Margerie stated that Total is also interested in entering the upstream sector in Brazil, particlualrly in offshore projects such as the Santos basin and is also eying new acreage in Venezuela.

“We have had discussions with Petrobras and told them officially that we would be interested either in entering existing discoveries or taking part in the next bids on new acreage,” de Margerie told reporters at a briefing in London.

He stressed that Petrobras needed financing to develop the reserves in the offshore basin, but that Total was not interested in merely becoming a financial partner in Brazil. De Margerie also said Total would be interested in bidding for new exploration acreage in the extra heavy crude oil Orinoco Belt in Venezuela.

“There is room for additional development  & we will be one of the companies to get access to the bid data, and we may bid,” he said. “We need to operate in Venezuela in good conditions, but it is an important target in terms of acreage” .

De Margerie said Total was right to stay in Venezuela despite the nationalization by President Hugo Chavez of large swathes of the country’s oil industry in 2007. Chavez nationalized oil fields when crude prices were on what looked like an unstoppable bull run, and as a result ExxonMobil and ConocoPhillips left Venezuela and are still runiing legal battles over disputed projects. It was reported earlier this year that Venezuela is now looking for new bids to develop fields from both global majors and state-run oil companies. Total which saw its stake in the Sincor project reduced from 47% to 30.3% in Chavez’s ambitious move remains committed to the project.

“We have to make sure our existing Sincor project delivers–this is still a real challenge,” he said.

Looking at Total from an independent viewpoint, it is obvious the management are playing a canny game. We have seen them exit or scale down high cost projects, such as Saudi Arabia, UK & Canada, whilst at the same time, investing heavily in emerging market prospects, as is clear from this article. What also impresses me about this company is its track record of working well with IOCs such as Chevron as well as local state entities & as long as it continues with this “nimble” approach along with a prudent focus on legacy operations, the future looks very bright indeed.

Militants in Niger Delta … bad for Nigeria, could be good for Angola & Ghana

oilrig_1515_18918777_0_0_7306_300Like many developing nations with vast natural resources, Nigeria has seen a massive influx in Foreign Direct Investment (FDI), particularly in the energy sector. However, civil unrest, particularly in the Niger Delta, may be a catalyst for potential investors to look to other West African Nations as investment opportunities. Added to this are the ever present problems of ineptitude & “graft” within both state & federal government, which has brought some unwelcome news for Africa’s largest economy.

Last week, Russian giant Gazprom (OTC : OGZPY) announced that it was in discussions to inject up to $2.5 Bn into a joint venture enterprise with state owned Nigerian National Petroleum Corp (NNPC), with a view to developing domestic gas production, processing, and transportation.” Nigeria has an estimated 187 trillion cubic feet of natural gas reserves. Industry experts see the deal as a positive move by the federal government to utilize the country’s huge gas resources that have hitherto been wasted, it is estimated that Nigeria flares off as much as 14% (24 billion cubic feet) of global gas wasteage.

The Russian gas company is attempting to become involved with the Trans-Saharan gas pipeline (TSGP). The pipeline, which would connect the Niger delta in Nigeria and Niger, to existing gas transmission hubs to the European Union at El Kala or Beni Saf in Algeria’s Mediterranean coast, is expected to cost $10 billion, of which Gazprom will initially invest $2.5 billion. The project is due to commence in 2009 and isplanned to complete in 2015, when Nigeria hopes it will become one of the biggest sources of natural gas for continental Europe.

Livi Ajounuma, General Manager at NNPC, confirmed that “we have signed a Memorandum of Understanding [MOU]”. He commented further on the deal saying, “It’s a good thing. It means that a giant company like Gazprom can come to Nigeria.”

All is not as rosy as it may seem however, as the Russian Ambassador to Nigeria, Alexander Polyakov, staged a withering blow at Nigerian confidence this week. Polyakov has called on the Nigerian authorities to create a stable environment for foreign nationals who come to work in the country, to continue the flow of foreign investment and development of the economy. Over 200 foreigners and countless Nigerians have been kidnapped in nearly three years of rising violence across southern Nigeria. Some militants claim to be fighting for greater control over the Niger Delta’s oil wealth, however, other gangs of armed, jobless youths make money from extortion and kidnapping.

Polyakov urged prompt release of all hostages, including some Russians,currently being held by militants in Nigeria’s southeast Niger Delta region.”Everybody in the region and the government should play their role to ensure that all hostages are freed,” he said.

There are strong indications that investment inflow to the upstream sub-sector of the Nigerian oil industry has started dwindling as foreign investors now choose Angola and Ghana as preferred destinations over Nigeria. Which in turn, threatens Nigeria’s capacity to grow its crude oil reserves as planned, it is targeting 40 billion barrels proven reserves by 2010. Analysts have identified insecurity in the Niger Delta and weak fiscal policy as key reasons why investors are beginning to leave for more stable business opportunities in Africa. Recently due to militant activity Royal Dutch Shell (NYSE : RDS:A) has seen its production dropping from one million bpd to about 380,000 bpd at its Bonny terminal in the south of the Delta. Exxon has also experienced increased insurgent activity in its Nigerian operations.Last week, local union officials threatened to call a strike which would shut down crude exports from the River state, until such time as the issues are addressed by State & Federal officials. Nigeria is already suffering from production slow down due to militancy, currently the Niger Delta is only exporting 1.8 million bpd, compared with a targetted 2.2 million bpd.

Near neighbour Angola has now  begun to attract more investments from oil companies as International Oil Companies are making long term expenditure commitments in the African oil ventures. Total (NYSE : TOT) said last week that it would continue with a $9 billion investment to raise production in Angola, despite the huge drop in crude prices since July last year. Total plans to stick to its major investments in Angola, even as it expects crude prices to recover, the company’s top official in Angola said.

“We are living through a crisis that has pushed oil prices to very low levels. Therefore, we are being extremely strict with all our investments,” Olivier Langavant, Director General in Angola, was quoted as saying in an interview with Reuters. “But the big projects (in Angola) like the Pazflor, which is a $9 billion investment, will be maintained.”

Pazflor, Total’s third production hub in Angola’s offshore Bloc 17, is expected to begin pumping oil in 2011 from water depths of up to 1,200 metres, according to the company’s website. Total is the third biggest oil producer in Angola after Exxon Mobil Corp. and Chevron, pumping, on average of over 500,000 barrels per day.

Chevron, Total and Eni are currently developing a $4 to $5 billion liquefied natural gas plant in Soyo, Angola. Whilst in contrast, Nigeria’s flagship Olokola, Brass LNG and NLNG Train 7 projects are yet to take off. Because of the high spend of the oil majors in Angola, oil service companies have begun to win big contracts. BP has awarded Halliburton more than $600 million in contracts for up to four projects in Angola.

Meanwhile, in Ghana, offshore oil finds in 2007 have led analysts to look at the small nation as becoming an “African Tiger”. Three vast blocks off of the West Cape Three Points are believed to hold vast reserves that may well outshine those enjoyed by Nigeria. The Jubilee field, one of West Africa’s biggest oil strikes in years, likely containins recoverable reserves of at least 1.2 billion barrels of oil equivalent, with first output scheduled for the second half of 2010. IOCs are lining up to take advantage, as smaller independent firms such as Kosmos Energy struggle to find capital to devlop proven resources in the area. Kosmos is reputed to have a $3Bn stake in the area up for grabs, according to industry website Rigzone. The current breakdown of partnership/ownership across the three blocs which can be viewed here at AfDevInfo, also includes US independent Anadarko (NYSE : APC)  & the UK’s Tullow (LON : TLW), along with various Ghanaian government run corporations.
This at a time when foreign investors in the Nigerian capital market withdrew some $4 billion from the Nigeria Stock Exchange kick starting a decline of over 50% in three months, according to its Director General, Professor Ndidi Okereke-Onyiuke. Coupled with an ever rising inflation rate, the highest for more than 5 years, is a major setback for Nigeria’s hopes of becoming a local economic giant.

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Petrobras – a shining light for oil service firms

logo_petrobrasWith the recent announcement that Petrobras (NYSE – PBR) would raise its five-year investment plan by 55%, knock on effects have been felt throughout the oil services industry & have spurred analysts to look at Brazil as one of the emerging markets that may lead the way in recovery from the current financial crisis. “Petrobras’s long awaited 5 year plan contains good news for service companies active in Brazil,” Keith Morris, analyst at Evolution Securities said in a research note.

State controlled Petrobras, announced a crisis-busting investment plan Friday to spend more than $174 billion over the next five years, much of it for deep-water oil and gas exploration. The investment period runs through to 2013 and represents a rise of 55% over the $112.4 billion the company had originally planned to spend on development between 2008 and 2012.

This investment is “very robust and very important for the continuity of Petrobras’s growth,” José Sergio Gabrielli, the company’s chief executive, told reporters on Friday at a news conference in Rio de Janeiro.

$10 billion of this capital would come from the BNDES national development bank with a 30-year repayment term. The bank has been stepping in and offering credit under favorable terms to local businesses, after international lenders pulled out due to the global financial crisis. BNDES has so far committed to bankrolling $11.9 billion of Petrobras’s investment budget this year, with an additional $5 billion coming from international banks. Chief Financial Officer Almir Barbassa said that the oil giant  will continue to work on cost cutting measures in order to free up as much as $4 billion annually in the next two years for investments and in an attempt to prevent debt from swelling. The company will seek to keep its investment-grade debt rating as it invests $174.4 billion in the next five years, he said.

Petrobras has based its 2009-2013 plan on Brent crude at $42 a barrel, with financing needs for 2009year based on Brent at $37 a barrel. Brent futures for March delivery are currently trading at a median of $47 a barrel the last two weeks, although the price was as low at $36 last month. Petrobas has set total investment for 2009 at $28.6bn. With Brent at $37, this requires finance of $18.1bn, of which Petrobras has already secured $16.9bn, including the $11.9bn from the BNDES. As previously discussed in India & China move to secure oil reserves , the Chinese development bank approached Petrobras with a $10Bn offer in December, it is unclear if the Chinese offer is part of PBR’s calculations or not.     

Today, according to Bloomberg, Petrobras has stated that it is suspending a planned bond sale on the international markets, as there is no need to raise more funds in 2009 after securing $17.5 billion in financing from Brazil’s state development bank and other lenders. Borrowing costs have climbed after the global credit crisis led investors to shun emerging-market debt and oil slumped 72 percent from a record $147.27 a barrel on July 11.

“We want the financial market to adjust the costs to the risks Petrobras has,” Gabrielli, 59, said in an interview with Bloomberg TV in New York yesterday. “Petrobras’s risk curve needs to be more realistic than it is today. We need to observe the market conditions and go to the market when they are more favorable.”

Petrobras and partners including Repsol (NYSE – REP) and BG Group (LSE – BG) discovered vast deposits of oil under more than 4,000 meters of water, rock and salt in 2007. The deposits are at previously untapped depths and will be costly to extract, they hold an estimated 8 billion to 12 billion barrels of oil, according to Petrobras figures. It is thought that other reserves may be nearby in other as yet unexplored blocks. The flagship Tupi field is estimated to hold between 5 to 8 billion barrels of light crude oil and is the world’s biggest new field since a 12-billion-barrel find in Kazakhstan in 2000, whilst a second fin, Iara, is estimated to run between 2 to 4 billion barrels.

Companies with experience in deepwater and subsea engineering are expected to be key beneficiaries from the finds, this already being reflected in the market, with companies such as Swiss based Transocean (NYSE – RIG) showing an uptick in share price. Likewise in London, oil pipe manufacturer rose by more than 12% following Fridays announcement by PBR, which is Wellstreams largest customer. Analysts have noted that interest is running back into oilk service firms globally in the last week, with Norwegian engineering firm Acergy registering a 4% gain, bucking the market trend.

This could also be good news for US firms that are involved in South American finds, Devon Energy (NYSE – DVN) , the largest indepandent oil firm in the US, recently signed a long lease deal for the deep sea exploration vessel Deepwater Discovery from Transocean. Devon has had pre-salt production running in Brazil since 2007 on their Polvo field & have an additional 9 blocks that are waiting to be fully surveyed. One of these, the Wahoo prospect is currently drilling at approximately 18,600 feet. Devon & its partner partners plan to conduct additional evaluations of the well when it reaches its total targeted depth of approximately 20,000 feet.

“We are encouraged by what we have seen so far in the Wahoo well and look forward to the results of additional testing and evaluation,” said Stephen J. Hadden, senior vice president of exploration and production. “Brazil has been the site of some of the most promising recent deepwater oil discoveries in the world. Devon has an active exploration program under way in Brazil with other very attractive prospects nearing the drilling stage.”

The spending plan “means there’s going to be a lot of investment for the oil and gas sector in coming years,” said Roberto Lampl, who helps manage $12 billion in emerging-market assets at ING Investment Management in The Hague. Foreign direct investment “was still pretty high for December and that’s definitely positive.” “On a relative basis we see Brazil as very attractively valued and we are fairly positive on the country and various companies,” said Lampl, who moved to an “overweight” position on Brazilian stocks at the beginning of this year.

Brazil received a record $45.1 billion in foreign direct investment in 2008, the central bank said in recent report, FDI surged to $8.1 billion in December, more than twice the $3.1 billion median estimated by economists surveyed by Bloombergs.

Qatar to continue double digit growth as LNG buoys economy

qatar_gas1_full

As the financial crisis continues to reach around the globe leaving most economies reeling in its wake, the Gulf state of Qatar is hoping that its substantial natural gas reserves will cushion it from the worst of the fallout. While other gulf economies face slowing growth rates, Qatar hopes that its vast gas reserves will allow it to weather the storm more easily than its regional neighbours.

“Selling gas gives a much better outlook for Qatar than the rest of the GCC countries,” says Philippe Dauba-Pantanacce, a senior economist at Standard Chartered Bank. “They have been doing a lot of heavy investments in terms of gas production, and they are yielding the benefits now.”

Qatar boasts the third largest gas reserves in the world after Russia and Iran, and is the world’s largest exporter of liquified natural gas (LNG). Experts predict that Qatar’s economy could grow by more than 10% in 2009, bolstered by projected strong expansion of gas exports and assisted by a potential drop in inflation. Such growth seems particularly remarkable when one considers that GDP growth in the United Arab Emirates,  is projected to dip under 3%.

“Qatar’s economic growth will be the strongest in the region by some margin,” insists Simon Williams, HSBC’s chief Middle East economist. “The industrialisation process in Qatar is advanced, the infrastructure build-out programme has momentum, and financing is secured for many of the key projects.”

This growth is expected to help Qatar push forward with in excess of $222bn worth of projects, as it strives to move away from its dependency on energy and become a ‘knowledge’ economy.

While the oil price collapse has weighed heavily on other Gulf states partially dependant on oil exports for their revenues, economists say the slide will have no impact on Qatar’s gas exports, which are based on long-term, locked-in price contracts. Most of its growing LNG exports are sold on long-term contracts, many linked to a lower reference oil price than currently projected for 2009, and are thus not expected to be adversely affected by the current slump in oil prices, according to analysts. With new LNG facilities scheduled to come on stream from producers RasGas and QatarGas, Qatar’s aim is to more than double its production capacity of 77 million tonnes per year by 2010.

Qatar is expected to print the strongest GCC current account surplus in 2009, above 30% of GDP. The recently completed $5Bn Dolphin Project, a good example of a “cash cow” project for the island nation, has now started pumping gas from Qatar to the UAE via an undersea pipeline.  The UAE has the fastest growing gas demand in the Middle East due to a rapid expansion in power and industrial projects and its gradual switch to gas as a cleaner source of energy. From around 21.2 billion cubic metres in 2000, the UAE’s gas demand surged to 34.1 billion cubic metres in 2005 and is projected to soar to 42.9 billion cubic metres in 2010, to 51.9 billion cubic metres in 2015 and nearly 63.2 billion cubic metres in 2020, according to the Ministry of Energy. Qatar’s North Field is the centrepiece of this project, with the pipeline carrying up to 30 million cubic metres of natural gas per day from Qatar to the UAE for a period of 25 years.

“In terms of top-line economic performance, Qatar is going to be one of the most strongly performing economies around the world next year,” says Robin Bew, editorial director and chief economist at the Economist Intelligence Unit. “But it’s important to point out that doesn’t mean it has dodged the economic bullet.”

“In terms of revenues coming into the economy, they are going to see a relatively more stable revenue base and that should help them going forward,” says Robert McKinnon, managing director of research at Al Mal Capital. “So they should be able to continue a lot of their infrastructure spend, and in terms of the GCC it would be probably the safest place to invest in the coming year.”

While global oil producers are contemplating ways to prop up crude prices, it would seem that gas producers don’t share the same agenda, for now. Gas and LNG are globally traded on 25-year, long-term take-or-pay contracts driven by a formula, wheras oil is traded on spot contracts. Major gas exporters have met informally for several years at the annual Gas Exporting Countries Forum, a group which includes Russia, Iran, Qatar, Venezuela, Nigeria, Algeria, Egypt, Indonesia and Libya, as reported by Graham Stack in his East of Europe blog.  However Iran is pressing for a formation of an OPEC-like gas cartel to set global prices, whereas Qatar & Russia seem to be more concerned with “reaching strategic understandings” on export volumes, schedules of deliveries, and the construction of new pipelines. They also plan to jointly explore and develop gas fields and coordinate start-ups and production schedules.