start here

start here

The Daily IKN email digest, get all daily posts sent to you next day (& no ads)


What? You mean Otto was right about the Petrobras "find"?

It has finally dawned on the sheep up North that the 33 billion barrels of oil Petrobras has supposedly found in its new deepwater survey isn't the manna from heaven that foolish analysts made it out to be. Way way back on April 17th, your humble correspondent totally nailed the story with this post. Click on that link to get the full rundown, but basically I said that:

a) Nobody knows how much oil is down there, so pulling numbers like 33Bn barrels out of a hat is just plain stupid, and especially stupid for big New York analysts to recommend buying PBR on such flimsy evidence.

b) Even if
it is a large find, it aint gonna be easy to get the stuff out and it will be darned expensive whatever happens.

So Bloomberg dropped this bomb on the long sheep today. Well pointed out the bloody obvious, really, but it needs to come from a reliable source before anyone cares:

a) The oil field lies twice as deep underwater than the present depth record for production

Then there is about a mile of rock hard salt laden seabed to drill through

Then the oil is cooking at 500ºF at very high pressure, a combo which is good enough to melt any equipment currently in use.

d) The very incomplete seismic survey will have to be upgraded, cos you gotta get the drill points spot on when you're drilling under these circumstances else pay serious money for a dry hole. This isn't like drilling a hole Texas, getting slightly miffed if nothing happens then moving on and drilling another. These holes come in at around $60m a pop.

So the bottom line is even if there is oil and even if they can get the oil out of the ground, it's gonna be a real expensive project and it'll take ages to get it going. Just like I said back on the 17th when I called the stock a short.

Since then the stock went from $124 to $130 or so, but in the last few days has come back and now it's at $122 and my call is in the green. The WTI oil price moving from $113 or so to $120 didn't help my short cause at all, and although I was tempted to short more at $129 or so I didn't. Frankly I was chicken, cos the frenzy fed on shaky information and hype could have taken the stock higher.

But now that reality is beginning to bite and the news on exactly what this oil find is really about (and is that oil price dropping a touch at last?) the short play is looking good. I said before that it was an easy $10 trade....with $8 to go I'm sticking to that call, dude.