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The Second-Largest Oil Field Discovered In the Past 20 Years

By Matt Badiali, editor, S&A Resource Report
Thursday, November 15, 2007

Last Tuesday, the entire the oil industry focused its attention in one direction... Brazil.

That day, the CEO of Brazilian oil giant Petrobras had every right to smile as he described an event that created $53 billion in market value in a single day... His company had found the second-largest oil field discovered in the past 20 years. Its name is Tupi.

The Tupi field holds between 5 billion and 8 billion barrels of light, sweet crude oil. That's a little less than the entire reserves of Norway. It increases Brazil's reserves by 50% to 14.4 billion barrels.

That estimate will grow. Petrobras' best estimate is that Tupi's trend runs 500 miles from north to south and 125 miles from east to west. That's 62,500 square miles. But there's a catch... Tupi is underwater. You need highly specialized equipment to map, find, and extract the oil.

A thick salt layer hid Tupi from previous exploration. Salt layers play havoc with the seismic surveys oil companies use to map out prospective fields. Only recently have seismic companies refined their surveys to "see" through the salt.

One new technique is wide azimuth (WAZ) seismic. It involves multiple ships spread over large areas moving together in a carefully choreographed dance. The surveys are so large that a recent WAZ group was able to survey an area the size of Manhattan every six hours.

Tupi proves that those surveys are worth the price. The value is showing up in the huge earnings increases in seismic players like CGG-Veritas, the world's largest seismic imaging company. It's a WAZ pioneer. I devoted the entire issue of this April's S&A Oil Report to the company...

CGG-Veritas' first-half revenue increased 37% in dollar terms... and the share price has gained 51% since we jumped in. I think even larger gains are coming. The few big oil fields left to find lie farther and farther (and deeper and deeper) offshore. That means the world's major oil companies' dependence on CGV's seismic tools and data will only increase...

We should see some copycat discoveries near Tupi in the near future. However, this region belongs to Brazil and the partially state-owned Petrobras. In fact, Brazil announced that it removed 41 blocks around Tupi from the next lease sale. Guess who will benefit from that...

With the prospects of billions of barrels of oil trapped beneath salt layers all over the world, oil companies are willing to spend money on these expensive techniques... and it all adds up to one conclusion:

Companies with excellent deepwater exploration teams will continue to make big discoveries, and their share prices will continue to jump on that news... and the leading seismic companies that can perform advanced techniques, like WAZ surveys, will be a great investment over the next five to 10 years. If you're looking to make long-term investments in energy, make sure you're on board.

Good investing,

Matt Badiali

Market Notes


Most realtors in America believe the day you're granted a real estate license, you also become an expert in predicting interest rates... and as we discussed last year, their prediction is always the same: "Buy this house from me before interest rates rise."

Trouble with this prediction is that realtors have compiled a laughable forecasting record for the past 30 years. Long-term rates have been in a steady downtrend since the early 1980s. The past five years have been another helping of failure...

Our opinion: Leave long-term interest-rate forecasting to the realtors. There are far, far easier ways to make money in the markets than guessing what the long rate number will be. As today's chart shows, it is essentially the same as it was five years ago.

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