For as long as most of us can remember the center of gravity in the oil industry has been the Middle East. Indeed, Saudi Arabia has long been the key producer globally with its ability to quickly ratchet its oil production up or down. In the same way, however, that the world is becoming more "multipolar" politically, we are also seeing emerging signs of multipolarity in oil production as well.
One country that has been at the forefront of this trend has been Brazil. As the graph below shows, Brazilian oil production has been trending upwards, and the latest data is that as of the end of 2011 Brazil was producing approximately 2.2 million oil barrels per day (bpd).
Brazilian oil production is set to more then double in the next eight years to approximately 5 million bpd, which would make it the fourth leading oil producer in the world after Saudi Arabia, Russia and the United States. The major reason for Brazil's potential growth lies in its offshore oil fields. Brazil had two major oil finds in the waters off its coast during the period between 2007 and 2009, the Libra and the even larger Tupi. What is both fascinating and challenging about Brazil's oil bounty is its location 5 - 7 kms underneath the surface of the ocean in the so-called pre-salt layers.
The extraction of pre-salt oil requires an offshore rig with a special drill bit able to bore through several thousand feet of salt to reach the treasure below. This type of offshore drilling requires a special capability, and it is for this reason that I see one interesting way to play Brazil's offshore oil boom to be buying makers of the "picks and shovels", i.e. the drilling rigs manufacturers themselves. The world's largest rig manufacturer is National Oilwell Varco (NOV), which benefits from economies of scale due to its size and has recently won several tenders for Brazil.
Over the past five years, both sales and earnings at Petrobras have grown approximately 26% per cent annually, and given Brazil's huge production upside - of which Petrobras will be the natural beneficiary.
Brazilian oil production is set to more then double in the next eight years to approximately 5 million bpd, which would make it the fourth leading oil producer in the world after Saudi Arabia, Russia and the United States. The major reason for Brazil's potential growth lies in its offshore oil fields. Brazil had two major oil finds in the waters off its coast during the period between 2007 and 2009, the Libra and the even larger Tupi. What is both fascinating and challenging about Brazil's oil bounty is its location 5 - 7 kms underneath the surface of the ocean in the so-called pre-salt layers.
The extraction of pre-salt oil requires an offshore rig with a special drill bit able to bore through several thousand feet of salt to reach the treasure below. This type of offshore drilling requires a special capability, and it is for this reason that I see one interesting way to play Brazil's offshore oil boom to be buying makers of the "picks and shovels", i.e. the drilling rigs manufacturers themselves. The world's largest rig manufacturer is National Oilwell Varco (NOV), which benefits from economies of scale due to its size and has recently won several tenders for Brazil.
Over the past five years, both sales and earnings at Petrobras have grown approximately 26% per cent annually, and given Brazil's huge production upside - of which Petrobras will be the natural beneficiary.
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