Remote locations of Brazil’s Amazon have potentially large untapped oil and gas reserves, but lack of adequate infrastructure to explore these resources have prevented success … until now. Oil and gas company HRT Participações em Petróleo S.A. has dispatched more than 1,000 workers to dig exploratory oil wells in the region.
Brian Hicks, co-manager of the Global Resources Fund (PSPFX), recently embarked on a research trip to Rio de Janeiro to visit HRT’s headquarters and operations. He was kind enough to sit down with us to share sights and sounds from his trip.
Q. Why are these trips important?
A. Our investment team travels thousands of miles around the world every year to find new investment opportunities for our shareholders. We also do our due diligence on individual investments, particularly when it is one of our larger holdings, such as emerging oil and gas company HRT Participações em Petróleo S.A.
This was the first time I visited the company’s operations in Brazil. I wanted to discuss the progress with senior management and see firsthand how the operations have developed.
The trip underscored the challenges a resource company faces when it sets up operations in an environmentally sensitive area. The first leg of my trip was to take a red-eye from our San Antonio, Texas headquarters to Rio de Janeiro to discuss fundamentals with executives in their corporate offices. From there, I took another red-eye to Manaus aboard a small aircraft which brought me to a landing strip where I jumped on a helicopter to fly over the dense forest of the Amazon. This was the only way to reach the various drill sites to meet with technical personnel.
Q. What logistical challenges has the company overcome?
A. The Solimões Basin is located deep within a remote section of the rainforest near the Amazon River, and HRT has had to haul in everything needed to develop and drill for oil by helicopter or boat, including supplies, equipment and personnel. They’ve also built living quarters for about 1,000 people who work in round-the-clock shifts tapping deep, rich oil and liquid zones.
Although this is a higher risk venture, the payoff may be big—HRT estimates there may be 541 million of barrels of oil equivalent (boe) of contingent resources. Daily production could reach 50,000 boe by 2014. The company’s success hinges on its ability to drill, but we’re excited about its prospects. Considering the company’s small market capitalization, productive wells could have a meaningful impact on the bottom line.
I’m confident in the company’s ability to produce. During my time in Brazil, I met several talented individuals who hold PhDs, have experience working in this area of the Amazon and many have worked for Petro Bras, the largest oil company in Brazil. Taking these trips, seeing these operations and spending time with these experienced people helps us understand the magnitude of HRT’s potential.
Q. What’s unique about the Global Resources Fund’s investment in HRT?
A. We recognized the potential in HRT early on. I’m proud that U.S. Global Investors was the only publicly traded, open-end mutual fund involved in the seed investment phase, meaning we provided a portion of the capital for the company to get its operations off the ground, before it produced any resources, and before the company went public.
Q. Why is this important to shareholders?
A. With the collective knowledge of resources, geology, mining finance and the associated risks, our investment team has a long history of identifying and investing in these opportunities. We’re willing to deploy capital and patiently wait for results. Our team can be nimble, finding remote areas of the market which may offer tremendous growth. For Global Resources Fund investors, this is a competitive advantage and differentiating factor, allowing us to historically generate alpha over the index.
Watch the video as Brian shares footage from the Amazon site.
