Petrobras has estimated that the Tupi field alone probably holds between five billion and eight billion barrels of oil. Brazil already has a proven oil reserve base of 14 billion barrels.
The find would represent the biggest single oil discovery in the world since the mid-1990s. Furthermore, the company's director of exploration and production suggested this week in a London newspaper that the Tupi field could be just a small part of potential discoveries in neighbouring fields.
By way of comparison, Petro-Canada shares have returned just 7.7 per cent in the last year; Suncor Energy Inc. 45.8 per cent and Husky Energy Inc. 13.9 per cent. (It should be noted that Petrobras, in addition to its oil and gas operations, also has thermal power plants, fertilizer plants and petrochemical units.)
Given such potential, Petrobras has caught the eye of many an investor banking on the share prices rising still further. Just how much the shares of Petrobras - already the world's seventh largest company by market value - will climb seems to be a matter of debate.
Tereza Mello, who follows the company for Citigroup Global Markets Inc., has just raised her target price for the preferred shares to 58 Brazilian reais ($36.05 Canadian) from 50. The preferreds ended yesterday at 46 reais, down from a high of 53.68 reais on May 21. Frank McGann, an analyst with Merrill Lynch & Co. Inc., has a price objective of 78 reais for the common shares, which closed yesterday at 54.3 reais. The American depositary receipts, which trade under the symbol PBR on the New York Stock Exchange, fell $2.71 (U.S.) yesterday to $66.29.
The share price will, it is expected, be driven by news about the company's exploration and production and by oil prices, which the head of Petrobras said yesterday he expects will likely stay high for four to five years.
Investors are well aware of the potential connected to Petrobras's discovery, but it is going to cost huge amounts of cash to develop the Tupi deposit and nearby prospects. Last week, Bloomberg reported that Peter Wells, director of a British research firm and former exploration manager for Royal Dutch Shell PLC, has estimated that developing those fields will probably cost $240-billion. This year alone, Petrobras has indicated it will spend the equivalent of $33.5-billion on investments.
A key item on its shopping list will be drilling rigs and other vessels. Among other things, Petrobras expects to lease 57 rigs capable of drilling in waters deeper than 2,000 metres between 2009 and 2017.
Petrobras (PBR), Brazil’s largest energy company, was founded in 1953 and is now one of the world’s largest oil company with 109 production platforms, with 77 fixed and 32 floating. It has 5,973 service stations all over Brazil, in addition to another 990 of them abroad, and 15 refineries with installed capacity to process 2.2 million barrels per day.
Fiscal ‘07 saw a production of 2.3 million barrels of oil equivalent, a milestone reached by few companies in the world. However, the company has more ambitious plans.
Based on its Business Plan 2007-2011, Petrobras is set to maintain its rapid growth rate, aiming for the first time, to plan its production over the long term: a total of 4.556 million barrels a day [bpd] of oil and natural gas will be produced in Brazil and abroad in 2015. As a guarantee of a solid foundation for future growth, for every barrel that was produced during the year 2006, 1.739 barrels were added to the reserves.
As stated in economic and financial reports, the company continues trending towards growth. Profit surged from $1.373 billion, in fiscal 1997, to more than $13 billion in fiscal 2007.
Recently, Petrobras found a giant new field with potential recoverable oil reserves between 700 million and one billion barrels-catapulting its already huge pool of reserves to 9.6 billion barrels.
On April 14 of this year, according to Brazil’s National Petroleum Agency, a deep-water exploration area off Brazil’s coast suggested that the specific area could contain as much as 33 billion barrels of oil. If proven, the oil in the Carioca exploration area would also be five times larger than the Tupi oil field, whose estimated reserves of 8 billion barrels were announced by Petroleo Brasileiro SA (PBR) in November 2007. That would make it the world’s third-largest known oil reserve.
Brazil’s current proven oil reserves are 11.8 billion barrels.
Not only is Petrobras one of the world’s biggest oil producers, it is also the world’s biggest BioFuel producer. In the ’70s Brazil began transforming its sugar cane into fuel. Now as the rest of the world and global industry wheezes as oil-prices climb higher, Brazil is poised to not only weather the coming energy problems, but also get rich off of them.
Petrobras contributes in fueling almost 50% of Brazil’s cars with its BioFuels. It also imports its BioFuels to many other countries too, including India, Venezuela, Nigeria and the US. Currently, the company is building the world’s first major BioFuel pipeline and has plans on spending $54 billion on its BioFuel and oil production and distribution facilities by fiscal year 2010.
Petrobras is decades ahead of practically every other company in the world in its production and distribution of renewable energies and eventually as global oil supplies evaporate, and oil prices spike, this company will only grow more valuable.
The company trades with an attractive P/E ratio that won’t remain cheap for long. It has $100.86 billions in revenues, $13 billion in net income, and a market cap of $284 billion. The company has almost 13% in profit margins with 24% in operating ones. It pays a dividend, which is based on the company’s growth, and profits should continue to rise for the next (very conservatively here) 3-4 years. PBR just had a 2:1 split carried out May 8, 2008.
With oil possibility hitting the $200 p/b mark in the not too-distant future, I remain of the opinion that the energy sector should be overweighted long-term. In particular, producers are likely to see large increases in production of either oil or gas over the next several years. At the large cap end of the spectrum this certainly includes Petrobras.
