Brazil's Tupi Oil Field May Be Hurt by Rig Shortage: Week Ahead

Petroleo Brasileiro SA, Brazil’s state-controlled oil company, may be hurt by a rig shortage as it begins development of the Tupi field, the largest discovery in the Americas since 1976, according to Jefferies & Co. Inc.

The company expects to almost double the numbers of rigs operating in deepwater offshore Brazil to 68 by 2012, from 38 today, according to Jefferies analyst Jud Bailey.

It’s “questionable” whether six of these rigs can even be built because the contractors are “small marginal
Tupi, which starts pumping oil on May 1, and other Santos Basin fields may contain about 100 billion barrels of oil, according to Marcio Mello, head of Brazil’s petroleum geologists association. That’s enough to supply all needs in the U.S., the world’s largest consumer, for more than 13 years, according to BP Plc. Petrobras is scouring the world in search of billions of dollars to finance the fields’ development.

Demand for vessels that can drill in ocean depths up to 10,000 feet is growing faster than the supply of rigs, forcing oil companies to pay escalating rates even after crude lost two-thirds of its value in the past nine months. Producers are betting subsea discoveries will tap pools of crude so large that they will be profitable regardless of oil prices.

A drop in oil prices has made it difficult for small rig builders to complete orders as margins narrow, Bailey said.

Bloomberg