30 Billion Barrels of Oil in Brazilian Santos Basin Deep Water Subsalt Play: Oswald Clint, Senior Research Analyst for Oil & Gas Exploration and Production at Sanford C. Bernstein & Co. Identifies New Source of Global Supply

Wall Street Transcript

67 WALL STREET, New York - January 9, 2013 - The Wall Street Transcript has just published its Oil & Gas: Refining, Independent and Major Integrated Report offering a timely review of the sector to serious investors and industry executives. This special feature contains expert industry commentary through in-depth interviews with public company CEOs, Equity Analysts and Money Managers. The full issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.

Topics covered: Capital Expenditures and Consolidation Activity - Refining Crude Price Differentials - Frontier Exploration and Development - Shale Drilling Capital Expenditures - Oil and Gas Price Divergence - Oil Price Expectations - LNG Global Pricing Differentials

Companies include: BP plc (BP), Total SA (TOT), Petroleo Brasileiro (PBR) and many others.

In the following excerpt from the Oil & Gas: Refining, Independent and Major Integrated Report, an expert analyst from Sanford C. Bernstein & Company discusses the outlook for the sector for investors:

TWST: What makes Brazil attractive for oil and gas, and which companies have the most exposure there?

Mr. Clint: So Brazil, it has 30 years of offshore production, so it's not a newcomer to oil and gas production such as its neighbors like French Guiana, Suriname and maybe potentially Uruguay, which has a new area of exploration. Brazil is grounded in three or four decades of offshore exploration and production, so they have an established industry, which is important, and they have an established fiscal regime for the upstream. It hasn't changed for 13 years, which I think is important. I mean, upstream taxes have not been altered by the government. That's relatively stable to be honest. I mean, the only country that's never changed practice in about 40 years is Norway. But if you're in the U.S. or in the U.K., to be honest, in the last 13 years, they've seen multiple changes by both of those two regions. So I think that's important because in several non-OECD nations, you have a very risk of tax and fiscal regime change. That up until this point hasn't been the case in Brazil.

So why do I like it? They have the production base, they have experience, they have a stable fiscal regime, but we also have in the last five years uncovered an entirely new source of hydrocarbons. They're called subsalt. They've actually been undetected to the industry for let's say the last 50 years. Seismic used to uncover hydrocarbons has developed in the last 20 years to allow us to look underneath these salt layers. Some in 2006, in the Santos basin offshore Brazil, Petrobras (PBR) found a reservoir which happens to be 10 billion barrels or 11 billion barrels of oil, and then in the next three years we found, let's say, another 30 billion barrels of oil. So with 30 billion barrels of oil offshore in the deep water that sounds interesting, but it's complex because of the deep water.

So what's happening in the last several years is we are drilling into the subsalt. But the volumes of oil that you're bringing on a daily basis are just phenomenal. What I mean by that is 25,000 to 30,000 barrels per day of oil for every well that you drill, and if you were to go to the U.S. Gulf of Mexico, you find about 14,000 barrels per day per well. If you're in the U.K., you may find 5,000 barrels per day per well, but it's about the scale of the price, and it's about the productivity that's the flow rates of oil that are coming out. Because what that means is that your capital costs, your unit costs per barrel to develop are very, very low relative to the rest of the industry. So that's why I like it and the companies that have the best exposure to this happen to be Petrobras, which I don't cover, followed by those three companies I mentioned previously, that are BG, Galp and Repsol.

TWST: When you consider the oil industry challenges in Iraq, do you think it time for the majors to give up and go to Kurdistan?

For more of this interview and many others visit the Wall Street Transcript - a unique service for investors and industry researchers - providing fresh commentary and insight through verbatim interviews with CEOs, portfolio managers and research analysts. This special issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.

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