BG shares jump on potential large Brazil oil find

Shares in UK natural gas producer BG Group Plc jumped nearly 6 percent as investors started betting on the potential size of the Carioca oil discovery in Brazil after the chief of the country’s petroleum agency revealed the site could be holding around 33 billion barrels of oil equivalent, making it one of the world’s largest oil finds.

BG owns a 30 percent stake in Carioca, also known as Pan de Azucar or Sugarloaf, while operator Petrobras, Brazil’s state-owned oil group, holds 45 percent. Spain’s Repsol owns the remaining 25 percent.

Haroldo Lima, head of Brazil’s National Oil Agency, on Monday announced that Carioca could potentially contain as much as 33 billion boe, with “reserves five times bigger than those of Tupi”. But he cautioned the estimates were “unofficial”.

Tupi, also in Brazil, was hailed as one of the world’s largest oil discoveries after official estimates placed the field’s oil-on-place resources of anywhere between 12 billion and 30 billion boe, and recoverable reserves of 5 billion to 8 billion boe.

BG owns a 25 pct stake in Tupi, while Petrobras owns a 65 pct stake and is the project operator. Galp Energia holds the remaining 10 pct.

Petrobras attempted to play down Lima’s comments by saying that exploration work at Carioca continues and it was too early to say how much oil the field might contain.

Petrobras’s statement failed to douse investor enthusiasm over Carioca which sent BG’s shares in London higher by over 5.8 percent to 1,293 pence at 11.45 am.

Evolution, in a note, said Tupi’s value net to BG could be around 50 pence to 300 pence based on the oil-in-place estimates of 12 billion to 30 billion boe.

“If the Carioca super structure is indeed up to five times the size of Tupi then even on the most simplistic maths its value net to BG could be in the range of 250 pence to 1,500 pence,” it said, adding that even at the lower end of the range, Tupi and Carioca could be worth around 300 pence to BG.

Evolution upgraded its stance on BG to ‘buy’ from ‘add’ with an increased target rice of 1,500 pence.

“The big question, though, is — Are we heading for 20 pounds?” the broker said.

In February, BG had said Tupi is capable of producing around 500,000 to 1.0 million barrels of oil equivalent per day once the field is fully developed by around 2015.

Citigroup believes oil services groups like Wellstream Holdings Plc and Lamprell Plc could benefit from the further Brazilian discoveries.

Wellstream, a manufacturer of flexible pipes, has a manufacturing plant in Niteroi in Brazil and counts Petrobras as one of its major clients.

At 11.45 am, Wellstream shares were up over 5 percent at 1,326 pence, while Lamprell shares were down 2 percent at 438-3/4 pence.

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