Major Oil Discoveries Spur Energy Outlook Debate

NEW YORK (A DOW JONES INVESTMENT BANKER COLUMN), Sept. 22, 2009

Massive new oil discoveries have enthused investors and analysts alike, but with oil's near-term supply at multi-decade highs and its price climbing above $70 a barrel, energy faces mixed signals.

The finds have oil enthusiasts debating the theory of peak oil. But no matter the future, several companies stand to benefit.

Anadarko Petroleum Corp.'s (APC) discovery off the coast of West Africa last week marks the third major find this month, following BP PLC's (BP.LN) discovery in the Gulf of Mexico and Petroleo Brasileiro SA's (PBR) off the coast of Brazil.

The discoveries will take years to cultivate and develop but are a welcome sign to those who feared a supply shortage could ensue if the global economy recovers faster than anticipated.

According to analysts, Anadarko's discovery could yield 200 million barrels on an 8 million-acre grid off West Africa. Anadarko has a 40% interest in the area, while Spain's Repsol-YPF SA (REP), and Australia's Woodside Petroleum Ltd. (WPL.AU) each have 25% and Tullow Oil PLC (TLW.LN) a 10% interest. To further spread the cost, a new partner might be commissioned before additional offshore wells are drilled.

BP's Gulf of Mexico find could yield up to 4 million barrels of recoverable oil. The largest producer of oil and gas in the region said the deep waters of the Gulf could hold up to 50 billion barrels of oil, up from its previous estimate of 30 billion. BP owns a 62% interest in the plot, while Petroleo Brasileiro, or Petrobras, holds 20% and ConocoPhillips (COP) 18%.

The Brazil oil discovery is 63% owned by Petrobras and 37% held by Repsol. While the projected number of recoverable barrels is still unknown, the well had shown indications of oil in August. Petrobras CEO Jose Sergio Gabrielli believes the company can increase its oil reserves to 35 billion barrels in the next two or three years from 14 billion currently. Petrobras is seeking to increase output to 3.66 million barrels a day by 2013, up from 2.4 million barrels a day last year.

The finds highlight how oil companies are pushing into higher-risk territories, and deeper offshore. Anadarko's Sierra Leone well was found after drilling more than a mile below the surface of the ocean.

Because Petrobras contracts 80% of the world's offshore rigs, the company has a stranglehold on the market and will benefit from both its own finds and those of companies searching deeper offshore. The recent finds will also increase demand for these types of rigs. Yet the availability of existing rigs is limited, as is the shipyard capacity to build new drilling units, according to Petrobras' latest regulatory filing.

The finds represent a huge turnaround in sentiment regarding oil supply. Onshore oil fields have been reporting declining production numbers for years now. U.S. commercial crude inventories hit a 19-year high in April but have since retracted to 332.8 million barrels currently, according to the Energy Information Administration.

A look at the beneficiaries of each find suggests Petrobras and Repsol will stand to be the major winners. The news will be especially beneficial for Repsol, which has seen its return on assets dwindle to 3.6% over the last 12 months, down from 8.5% just one year ago. Repsol recently has been holding discussions to sell its stake in YPF S.A. (YPFD.BA) to raise cash and pay down debt. Net debt to earnings before interest, taxes, depreciation and amortization stands at 2.9x, according to CapitalIQ data.

Petrobras has fared better, posting a return on assets of 9.4% for the last 12 months and Ebitda margins of 28.6% over the same period.

Times have certainly changed for exploration and production companies as the industry's production cuts and rig shutdowns are beginning to affect the price and supply of oil. Crude oil is up 62% since the beginning of the year.

While the current price of oil makes the finds even more attractive to those with drilling rights, it has yet to be seen how quickly the demand for energy will return.  

Copyright (c) 2009 Dow Jones & Company, Inc.

Related Companies
 Company: BP plcmore info


 - Canada Rules Out Arctic Oil Drilling Extensions for ExxonMobil, BP (Jan 6)
 - Samsung Wins Mad Dog 2 Fabrication Contract (Jan 5)
 - Egypt Signs $220M Of Oil And Gas Deals (Dec 28)
 Company: Petrobrasmore info


 - Brazil's Petrobras Breaks Drought In LatAm Market (Jan 9)
 - Brazil's Petrobras, Joint Venture Hand Back Piracuca Oil Concession (Jan 3)
 - Brazil's Petrobras Finalizes Sale of Nansei Sekiyu for $165M (Dec 29)
 Company: Woodsidemore info


 - Subsea 7 Secures Services Contract with Woodside Energy (Dec 2)
 - Australia Watchdog Says North West Shelf Gas Venture Underpaying Royalties (Nov 28)
 - Woodside: Oil, Gas Deal Environment Has Improved Over Past Year (Oct 20)
 Company: ConocoPhillipsmore info


 - Startup Of Malikai Oil Field To Boost Malaysia's Kimanis Exports (Dec 13)
 - US Shale Firms Go Back To Work Buoyed By OPEC Deal, Trump Victory (Nov 14)
 - ConocoPhillips Aims To Sell Up To $8 Billion In Gas Assets (Nov 10)
 Company: Anadarko Petroleummore info
 - Anadarko To Sell Certain Marcellus Assets For $1.24B (Dec 21)
 - Mozambique Approves Changes To LNG Contracts With Anadarko, Eni (Dec 7)
 - More Company Climate Votes Ahead, As Trump May Loosen Energy Rules (Nov 25)
 Company: Repsol more info
 - Poll: US, Foreign Oil Companies to Prosper in Trump's USA (Nov 10)
 - European Industry Says Trump Must Define Energy Policy (Nov 9)
 - Repsol Raises Cost-Savings Target, Cuts Investments (Nov 3)
 Company: Tullow Oilmore info
 - Tullow's Founder Heavey to Step Down as CEO (Jan 11)
 - Total's Uganda Expansion 'Significantly De-risks' Project Sanction (Jan 10)
 - AkerBP, Cairn Energy Make Jefferies Top Pick List (Jan 9)
Events  SUBSCRIBE TO OUR NEWSLETTER

Our Privacy Pledge
SUBSCRIBE


Most Popular Articles


From the Career Center
Jobs that may interest you
Mudlogger / Wellsite Geologist
Expertise: Geologist|Mud Logging
Location: Midland, TX
 
Senior Petrophysicist
Expertise: Petrophysicist
Location: Houston, TX
 
Entry Level Geologist
Expertise: Geologist
Location: Blue Bell, PA
 
search for more jobs

Brent Crude Oil : $55.45/BBL 0.99%
Light Crude Oil : $52.37/BBL 1.20%
Natural Gas : $3.42/MMBtu 0.88%
Updated in last 24 hours