Could Namibia Be Ten Times Better Than Brazil for Oil?

I logged 9,814 air miles. Took four different flights. Spent a total of 54 hours traveling. All to meet with a man they call “Mr. GO Deep…”

“Mr. GO Deep” is the go to guy in offshore oil development. Oil companies pay him HUGE consulting fees in hopes to identify the next deep or ultra deep offshore oil deposits.

Yet in my recent trip down to Brazil, “Mr. GO Deep” sat at a table with me — just me — for two solid hours, explaining what he’s doing in the energy world. And why, while offshore Brazilian oil is good, there’s another deep sea play with even better oil prospects. Then he handed me off to several of his able staff, who were equally generous with their time and perspective. A first-class act, in every respect.

Here’s what I’ve found, along with a few ideas of how you can take advantage of the secrets he shared…

Meet “Mr. GO Deep” – The GO TO Man in Deep Oil Discoveries

The man I’m talking about is Marcio Mello — the always-ebullient Brazilian geochemist and CEO of Brazil’s HRT Petroleum Co. I first met Marcio back at last year’s American Association of Petroleum Geologists (AAPG) convention. He wowed the crowd with a discussion of the oil potential of the South Atlantic.

“The Namibian offshore is analogous to that of Brazil,” Marcio stated, with slides and hard data to back it up. Then he showed his proprietary research into natural offshore oil seeps off Namibia, and the geochemistry that demonstrates immense hydrocarbon potential. As for the reservoirs, he showed a slide of proprietary seismic data. “And look at this turbidite stuff,” he yelled, as a couple hundred seasoned geologists in the room both gasped and chuckled.

Indeed, Namibia is destined for oil riches. “But Namibia,” said Marcio, “is way underexplored. So you can put down a little money for the concessions and get very rich.”

Any mention of “very rich” makes my ears perk up. When I questioned Marcio further about the offshore Namibia deposits, he was gracious enough to invite me down to see his facilities in Brazil.

Here’s What I Found About Namibia…

I looked at seismic. I saw geochemistry. I saw satellite data. I saw gravity and magnetic maps. If there’s a frontier spot on earth where you can say that drilling risk is low for wildcat development, it’s offshore Namibia. (You just have to be sure to drill in the right place.)

Nothing is easy, of course. There aren’t a lot of wells offshore Namibia. Just a handful. But we know there’s a giant natural gas field at Kudu in the south, immediately north of the Namibian territorial line with South Africa. So there’s a hydrocarbon system out there. Now we know there’s gas, so where’s the rest of it? As Marcio says, “If I see a little baby, I look for its mama.”

After a week in Brazil, I can say something significant. It’s that right now, some people (guess who) know more about the deep regions offshore Namibia than Petrobras knew about the deep Campos Basin off Brazil before it drilled the Tupi discovery and found 12 billion barrels of oil.

The Secret Finding Namibia’s Oil

To understand what Marcio brings to the table – and his secret for finding deep oil plays — you first have to understand how big oil companies think about exploration…

There are a couple of different exploration philosophies among big oil companies. One philosophy is that the oil company gains an offshore concession and works the heck out of that concession. It puts big bucks into seismic, seismic and more seismic. Then it drills the biggest structure on the concession and MAYBE finds oil.

Or maybe not. Maybe the oil company drills a dry hole, because there’s a big structure with no oil. There are all sorts of geological reasons why this might happen. The bottom line is, “You have a wine bottle, but there’s no wine in it,” as Marcio says.

Another exploration philosophy is that an oil company gains an offshore concession and looks across the entire region for evidence of a petroleum system. Where did the oil and gas originate? Where’s the “oil kitchen”? What are the migration pathways? Where could that oil be now? After a lot of work at the REGIONAL level, then the company hones in on its concession and drills — and it’s not necessarily the big structure. Maybe it drills lower down, like in the oil kitchen.

I’m telling you things that people have spent BILLIONS of dollars learning the hard way. This is information that took Petrobras years to develop. Marcio had an uphill fight at Petrobras for a long time, working to replace “turbidite” thinking (a prolific kind of oil-bearing formation) with “petroleum systems” thinking.

Today, this “petroleum systems approach” is the kind of thinking that Marcio brings to the table.

Why Namibia’s Oil Is Even More Promising Than Brazil’s

If you’re a long time Whiskey reader, you already know I’m very bullish on Brazilian oil opportunities. But there are some things that make the Namibian oil plays even better. Allow me to explain…

Brazil is about to pass a set of new petroleum laws that will put its entire pre-salt region under the jurisdiction of a new national oil company (NOC), meaning NOT Petrobras, which is publicly owned. Future pre-salt deals will be along the lines of production sharing arrangements (PSAs) with the NOC, which private oil companies HATE because they can’t book the reserves and impress Wall Street.

There are all sorts of issues about how much interest Petrobras will get in future Brazil offshore concessions (30% is the current number). And how Petrobras will be the operator, on behalf of the NOC, of all future pre-salt plays off Brazil. It’s going to be complicated, if not hairy!

The bottom line is that if an international oil company wants to look for big oil fields, like pre-salt plays and find and book those huge volumes of oil, it has to go somewhere else.

Where else? Why… Namibia, of course! Offshore Namibia, you can get 10 times the acreage for 1/10th the price. For now..

There are many ways for you to take advantage of this discovery. First, if you’re looking for a home run opportunity, try searching some of the smaller oil companies with concessions in Namibia. You’ll want to look mainly at ones that are pure plays, though. A second, less exciting but safer way to play it would be to look at some of the big oil service companies that provide the drill bits, rigs, and hardware for general deep sea oil discoveries.

I recently put together a special report on Investing in Offshore Oil that discusses offshore oil investing plays.

Until we meet again,
Byron King
Whiskey & Gunpowder

February 26, 2010

The Daily Reckoning