Did Five Eyes Spy on Brazil’s Libra Oil Field?

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Is it possible this top secret (nonpublic) information factored into Exxon, Chevron, and BP's decision not to participate in one of the largest oil discoveries of the decade?

Who is Five Eyes?
Five Eyes is a cooperative network of intelligence agencies from Australia, Canada, New Zealand, the U.K. and the U.S. Originally founded during the Second World War, the U.S. and U.K. used it as a vehicle to share signals intelligence. Today's club has evolved to gather information on everything from defense intelligence to national assessments 

If you could catch them in their off hours, when they're not handling overflow-work from the NSA, I bet they'd be a real interesting bunch to sit down with. With such fascinating employment, they probably have loads of great stories to tell— but could hacking into the intranet of Petrobras (NYSE: PBR  ) to secure private data on their Libra Oil Field really be one of them?

10 billion barrels
In 2007, Brazil announced the discovery of the largest oil field in their history. If it proves to have 10 billion barrels of oil the Libra Field represents 2/3 of Brazil's reserves.

According to Shell CEO Peter Voser: "The Libra oil discovery in Brazil is one of the largest deep water oil accumulations in the world."

The catch, like most new discoveries these days, the oil is very difficult to access. The vast majority of the oil lies underneath five kilometers of water, but before you tap into it there is a deep layer of rock then salt to contend with, making recovery quite difficult (technically speaking). Remember BP's Deepwater Horizon disaster? That rig was operating in just 5,000 feet of water -- the Libra Field is multiples deeper than that! So you can imagine the operational challenges and expenses that will be faced on this project. However, on the bright side of huge risk (estimated $100 billion to develop) is the huge reward of 4.2 million barrels per day by 2020— Petrobras' stated production goals . If they can pull it off, the Libra could provide a gusher of cash onto the debt-laden balance sheet of this quasi-government entity.

And the winner is...
Brazil's much anticipated auction was completed on Oct. 21. Emerging as the winners (losers?) was Netherlands-based Royal Dutch Shell plc (NYSE: RDS-A  ) , France's Total SA (NYSE: TOT  ) , China-owned CNOOC Limited (NYSE: CEO  ) and the China National Petroleum Corporation. Of the 11 registered to bid, this consortium was the only one to present an offer. As generous business partners, they will hand the reigns of dominant stakeholder (40%) and operator over to Petrobras.

Shell and Total, each with a 20% stake, will both pay a signing bonus of $1.4 billion for the privilege of playing. While CNOOC and China National, each with 10% stakes, will contribute a token of $700 million apiece. The exploration contract is expected to be signed in November; part of the deal includes sharing 42% of Libra's production with the Brazilian government. 

Is that too much to ask?

Perhaps it was, at least for Exxon, Chevron, and BP et al. Maybe they just refused to play by Petrobras/Brazil's rules— end of story. These guys have plenty of weight to throw around; maybe they just decided to do it elsewhere in the opposed to a more sinister story where Five Eyes is involved, gathering secret intelligence covertly.

That would make for a much better read.

Final thoughts
Petrobras may have found a floor at $12 in July; that's a long way from the high of $70 back in 2008. More recently, the stock has gapped up from $16 to $18 on heavy volume. It may drift back toward $16, which would be a better entry. Keep in mind, Petrobras is a play on Brazil just as much as oil and Libra.

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Daniel T. Cook

When I was 12 I bought my first stock (five shares of HD). Then I started reading and writing about stocks (Buffett, Wanger, Motley Fool…). I’m still doing that today! My favorite recipes include metals, mining, and agriculture.

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