By Brazil Stock Guide — Petrobras (B3: PETR3, PETR4; NYSE: PBR, PBR.A) has found encouraging preliminary indications regarding the quality of the crude discovered off the coast of Amapá state, but is still awaiting laboratory tests to determine its characteristics and commercial potential.
Sylvia Anjos, Petrobras’ executive director of Exploration and Production, said the sample collected from the Morpho well had undergone only an initial on-site assessment.
“We conducted a preliminary flash analysis. It showed encouraging indications, but we will carry out the full analysis at our research center,” Anjos said during a press conference in Amapá.
According to the executive, the sample cannot be transported by air and will have to travel by sea or overland. It is expected to take approximately four days to reach Petrobras’ research center.
The full analysis should determine characteristics including API gravity, sulfur content, acidity and overall composition. These factors influence the crude’s market value, refining costs and the mix of products that can be produced from it.
The pending technical assessment contrasts with the enthusiasm displayed by Brazilian President Luiz Inácio Lula da Silva during the announcement. Holding up a vial containing the sample, Lula said the crude looked “as though it had already been refined because it was so light.”
Lula also said he had asked Petrobras CEO Magda Chambriard whether the crude was comparable to Brent, one of the world’s main oil benchmarks.
“I asked Magda: ‘Is it Brent?’ She said: ‘No, it is more than Brent. It is Brent with honors,’” Lula said.
The comparison, however, has yet to be supported by technical testing. Brent is both a global pricing benchmark and a crude stream with defined density and sulfur characteristics. A visual inspection of a sample is not sufficient to classify the oil or determine its commercial value.
Even if laboratory tests confirm that the crude is light and of high quality, the discovery’s economic viability will also depend on the size of the accumulation, reservoir productivity, the technically recoverable volume and the investment required to develop the area.
Morpho is located in the FZA-M-59 block, approximately 175 kilometers, or 109 miles, off the coast of Amapá, in a water depth of 2,886 meters. Petrobras holds a 100% interest in the block. Drilling remains underway, with approximately 1,000 meters still to go before the well reaches its planned total depth.
Chambriard stressed that Petrobras had announced an oil discovery, not a declaration of commerciality. The company still lacks sufficient data to estimate recoverable reserves, potential production, development spending or a possible first-oil date.
The encouraging early indications regarding crude quality add a positive technical element to the discovery. A definitive assessment, however, will depend on the laboratory results and the continuation of Petrobras’ exploration campaign.
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