The Rising Influence of Rising Affluence

[DewDiligence]

Brazilian Oil Well Isn't Entirely Dry

[They’re speaking figuratively, not literally.]

http://online.wsj.com/article/SB124568373381137393.html

›JUNE 22, 2009, 12:02 P.M. ET
By RUSSELL GOLD

The stock market's love affair with Brazilian offshore oil exploration is going through a rocky patch. But the market may be overreacting.

The romance began in late 2007, when Petroleo Brasileiro SA announced the Tupi discovery, the largest oil find in a decade. Enthusiasm for companies with nearby offshore leases -- BG Group PLC, Hess Corp., Royal Dutch Shell PLC and Exxon Mobil Corp. -- grew as investors hoped they, too, would find oil.

Then came the Guarani well, in which Exxon and Hess both claim a 40% stake. The well was drilled to 17,800 feet -- plenty deep to find oil -- but Exxon didn't report finding any evidence of oil or gas.

Exxon still isn't declaring the well a dry hole; it's cutting out a core sample of the rock to study it better [#msg-38360380]. But investors already are convinced it's a duster. Hess saw its share price plunge 11% on one day earlier this month. Since then, it has fallen another 12%.

Investors shouldn't get too down on Hess, Exxon and other Brazilian hopefuls just yet. Neil McMahon, an oil analyst at Sanford Bernstein, points out the companies are gaining valuable knowledge that will be critical to further exploration efforts in the Brazilian offshore and elsewhere. The same geologic activity that deposited oil off of Rio de Janeiro has led to some major discoveries in Angola.

The potentially huge profits in the Brazilian-West African offshore play is the best thing going for publicly traded oil companies. Having the information to avoid overpaying for leases or bidding in the wrong place is critical. So while the Guarani well is a disappointment, it could yet yield some real benefits.‹