Financial Times: Brazil’s Tupi field gives companies a lift

By Dino Mahtani
Published: November 10 2007 02:00 | Last updated: November 10 2007 02:00

Shares in Petrobras, BG Group and Galp Energia, partners in the large Tupi field in Brazil, rose sharply for a second day, although analysts said the optimism was overdone.

All three companies have had large gains since Thursday, when Petrobras, the state-controlled but majority-listed oil company and operator of Tupi, said well tests there had confirmed recoverable reserves of between 5bn and 8bn barrels of oil and gas.

The field, which would almost match Norway’s 8.5bn reserve base, could boost Brazil’s overall reserves by more than 60 per cent and has raised speculation of further huge discoveries in Brazil’s largely unexplored offshore oil and gas basins.

Analysts cheered the well results but many said share price gains reflected assumptions that the field would deliver maximum upside, even though more drilling was needed to test fully the quality of the reservoir.

“Until the field is properly appraised the resource estimate remains uncertain,” said David Thomas, a senior oil analyst at Citigroup.

Shares in Petrobras, which has a 65 per cent share of the Tupi field, have risen nearly 30 per cent to more than R$90 since the close of trading on Wednesday.

BG, the UK energy exploration and production group, saw share-price highs last month fuelled by speculation that it would be subject to a takeover bid by Royal Dutch Shell and Petrobras.

Its share price shot up to highs of £10.30 yesterday from 901p at the close on Wednesday, increasing its market capitalisation to £33.5bn ($70.1bn) and thereby narrowing down the field of possible bidders.

BG, which has a 25 per cent stake in Tupi, said the company was not commenting on the reserve numbers yet. “We believe there is more evaluation to be done.”

Shares in Galp Energia, Portugal’s leading integrated oil and gas company, rose to more than €15 yesterday, up nearly 22 per cent on the day and nearly 40 per cent higher since the close of trading on Wednesday.

Petrobras executives have said that production can be expected in five to six years, though many industry analysts say the field’s peak production will not occur before 2020.

Matthew Shaw of Wood Mackenzie, the energy consultants, said that it could cost a minimum of $50bn to develop Tupi, where wells have to be drilled 2km under water and then a further 2km through rock.

Copyright The Financial Times Limited 2007

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