With tensions and violence
escalating in Syria
, crude oil has once again come into the spotlight, as investors
weigh the potential of a US-led intervention on the commodity. And
though Syria is not a major oil producer, its close geographic
proximity to key sea routes and pipelines has investors
understandably concerned over the potential of violence spilling
into other countries in the region where roughly one-third of the
world's crude is produced. Though no major decision has been made
by the US government, or other major world leaders, support for a
US strike on Syria continues to build, which will undeniably affect
the crude market.
This week, however, crude oil traders learned of a new potential
opportunity in the space after Brazil's government confirmed that
it will sell one of its massive oil fields in late October of this
Can Libra's Potential Be Tapped?
On Tuesday, Brazil's government announced it will hold an auction
to sell a massive offshore oil field this fall. The site, named
Libra, is located roughly 140 miles off the coast of Rio de Janeiro
and is estimated to hold roughly 8 billion to 12 billion barrels of
recoverable crude oil, making it the largest deepwater oil field
ever discovered if the commodity is actually found to be
Libra, however, is considered to be a pre-salt oil deposit, meaning
that the oil reserves themselves are buried beneath 6,600 feet of
water and a further 16,500 feet of sand, rocks, and a thick layer
of salt. Brazil's oil regulator, the ANP, estimates that it will
take an investment of approximately $174 billion to develop the
field over the 35-year length of the contact.
These estimates, though quite high, could potentially become even
greater since pre-salt oil exploration has proven to be a costly
) also owns several major pre-salt offshore oil fields, and in its
2011-2015 business plan, the company stated it will invest $224.7
billion to develop the fields, which is a $33 billion increase from
the previous year's plan.
A Costly Risk or a Valuable Investment?
In addition to the massive costs that will be associated with
developing Libra, offshore drilling in these types of fields are
also extremely dangerous. Many analysts believe several companies
may place joint bids for the field in an effort to mitigate risk.
The winning bidder, however, will only have four years to confirm
Libra's actual size and to determine whether or not the field is
commercially viable. If the field is deemed viable, production will
still take several years.
For Brazil, the development of Libra could add as much as 1 million
barrels of oil per day, increasing Brazil's current oil production
to about 2 million barrels per day.
Though the potential profits of this kind of investment will likely
not be realized for several years -- and then only if the field can
be developed -- investors should certainly pay close attention to
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Editor's note: This article by Daniela Pylypczak was originally