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Michael Dell / Passport Capital – Behind IPO of Brazilian Company Planning to Hunt for Elephants

October 28, 2010 | About:
CanadianValue

CanadianValue

212 followers


Last week a Brazilian company called HRT Participacoes em Petroleo S.A. sold 2.18 million shares to the public. Before the IPO a unit of MSD Capital Management owned 12.46% of HRT’s shares making it the largest investor in the company. Other large holders include Highfields Capital and Passport Capital.

Why do I care ? Marcio Mello.

From http://energyandscarcityinvestor.agorafinancial.com on Mello:

“In 2000, Marcio edited and published a scientific book on the geology of the South Atlantic Ocean titled Petroleum Systems of South Atlantic Margins, AAPG Memoir 73. Despite its dry title, Petroleum Systems completely revolutionized the approach to exploration in what are called the “passive margins” along the coastlines of South America and Africa.

That is, Marcio presented a geological picture that started with idea of plate tectonics. He explained how rifting and seafloor spreading started about 130 million years ago. These earth dynamics led directly to modern potential for giant petroleum systems in the South Atlantic. These systems are vast. They’re emplaced beneath the continental shelves and slopes offshore southern South America, and, by analogy, Africa.

Petrobras used Marcio’s ideas to focus its exploration efforts offshore Brazil. Marcio’s team gathered vast amounts of remote sensing data from satellites and gravity and magnetic measurements. They performed chemical analyses, down to the DNA of oil samples. Marcio orchestrated a world-class effort to gather and process 3-D seismic imagery of Brazil’s near and deep offshore. Marcio’s team processed the heck out of these data and presented the findings to management. Then Petrobras began to drill in deepwater — a place where most though oil wouldn’t exist.

The rest is history, or I should say history unfolding before our eyes. In the past five years, Petrobras has announced dozens of new oil finds offshore Brazil. The Tupi discovery alone is 8–12 billion barrels of oil, and there are more Tupi-class discoveries out there. Petrobras has offered “official” resource estimates in the range of 20 billion barrels of oil offshore. But that’s just playing the cards close to the chest. The unofficial estimates are up over 100 billion barrels.

The point is that every day, Marcio Mello’s ideas about the development of petroleum systems offshore Brazil are proving true. Marcio and his team turned South Atlantic exploration upside down. With the success offshore Brazil, Marcio’s exploration work has fundamentally altered the energy equation in the world. He’s that good.

Marcio Moves to Other Frontiers



So what is Marcio Mello doing now? He has moved on to other frontiers. About four years ago, Marcio left Petrobras to set up his own consulting shop. It’s a privately held company called HRT Petroleum (for “High Resolution Technology”) in Rio de Janeiro. Marcio took with him some of the top exploration people at Petrobras — the best of the tech geeks and science wonks.”

Mello is credible given his Petrobras background and having Passport and Dell behind him adds to that credibility in my eyes. The reason I was worried about his credibility is because I discovered him through spam e-mails from what seems basically to be a penny stock newsletter.

And that takes me to my next step which is Mello and HRT’s involvement with a small Canadian company called Universal Energy which I’ve written about a couple of times previously.

http://www.gurufocus.com/news.php?id=110435

http://www.gurufocus.com/news.php?id=107108

Universal holds leases off of Namibia that have potential to contain huge amounts of oil. This presence of large structures has been verified by their reserve engineers, although until something is drilled you don’t know what is in those structures. Universal is a very small company so if something big proves out here it is going to be a homerun from the current stock price.

Normally, I would consider this just pure speculation. What has my attention is that Mello and HRT have acquired an interest in some of Universal’s leases which suggests that one of the foremost experts in the world is on board with the potential.

Universal’s stock price is up from 50 cents at the start of the year to $4.17 today. As I mentioned I bought a few shares about a month ago around $2 just to force me to follow the company and they are up to $4.17 today.

Even with Mello’s involvement I consider this far too speculative to be considered an investment. And the promotion of this company through what seems to be a bit of a questionable newsletter doesn’t help make me feel much better.

But I will be watching as this could turn out to be an “I’d have xxx million dollars if only” stories for me. And everyone enjoys having a story about the big fish that got away.

About the author:

CanadianValue
http://valueinvestorcanada.blogspot.com/

Rating: 4.5/5 (4 votes)

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