Brazil's Tupi seen a bonanza for oil service companies

By Anna Driver

HOUSTON, March 11 (Reuters) - Deep below the ocean floor off Brazil is Tupi, possibly the largest offshore oil field ever discovered.

Brazil controls Tupi, but getting crude oil out will create billions in revenue for oilfield service companies like Halliburton Co (HAL.N) and Transocean Inc (RIG.N) that have the expertise needed to tap the extremely complex reservoir.

Brazilian state oil company Petrobras' (PETR4.SA) Tupi field in the Santos basin has estimated recoverable crude oil reserves of between 5 billion to 8 billion barrels, and is the second-largest oil find in the past 20 years.

But an enormous shifting salt formation located 3.7 miles below the ocean floor covers Tupi, making exploration and production a technological challenge.

Service companies that provide deepwater drilling rigs, subsea production systems, directional drilling and offshore engineering and construction services will benefit from spending on Tupi, analysts and investors said.

"All of these companies are going to share in what is going to easily be $100 billion to $200 billion of capital spending to develop Tupi," said John Olson, who runs hedge funds for Houston Energy Partners. "All of this is at the very outer end of drilling technology."

Brazil's state oil company has said it plans an extended production test in 2009 and a 100,000 barrel per day pilot project is slated for late 2010 or early 2011.

Portuguese oil company Galp Energia (GALP.LS) holds a 10 percent in the consortium exploring Tupi, while U.K.'s BG Group Plc (BG.L) holds a 25 percent stake.

BIG BUSINESS

Tupi's big numbers have the oilfield services sector abuzz.

In a recent presentation to investors, Robert Long, the chief executive officer of the world's largest drilling contractor Transocean, described Brazil as one of the hottest deepwater markets in the world.

"It's going to be so big that it will help everybody," Mike Breard, energy analyst with Dallas-based Hodges Capital Management, said. "When every rig is sold out, and you add demand, it helps everybody."

Rapid growth in deepwater markets around the world has caused tight supplies for drilling rigs, a market where short-term daily contracts have topped $600,000.

Still, the companies that have an existing relationship with Petrobras including Schlumberger Ltd (SLB.N), Halliburton, Transocean Inc, Noble Corp (NE.N), Pride International Inc (PDE.N) and Diamond Offshore Drilling Inc (DO.N), may have an edge over newer competitors, analysts said.

"I think the established companies are in a better position," Mark Urness, analyst with Calyon Securities in New York, said. "Four U.S. drilling contractors have half the market down there, so one would assume they have a good shot at the business."