Petrobras: Poised for Growth

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 exports 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.

Comments

[User 131880]

How are we supposed to take you seriously when you give us the ticker "PZE" and show that chart as well. Do you proof read your stuff?

[jimslag]

The following is about PZE off Yahoo Finance and tells different story than you do. Where do you get your information as it is not correct about PZE ? Let's get this straight. Thanks...Jim

Petrobras Energia Participaciones S.A., through its subsidiary, Petrobras Energia S.A., engages in the oil and gas exploration and production, refining, and distribution; petrochemicals; and gas and energy businesses. The company conducts oil and gas exploration and production activities in Venezuela, Peru, Ecuador, Brazil, Bolivia, Colombia, and Mexico. As of December 31, 2006, it had interests in 46 blocks, including 24 oil and gas production blocks, of which 16 were located in Argentina; and 22 exploration blocks, of which 15 were located in Argentina. The company had estimated crude oil and natural gas proved reserves of 527.2 million of oil equivalent, as well as held interests in 5,585 gross oil productive wells and 323 gross gas productive wells. Petrobras Energia Participaciones' refining and distribution operations are conducted in Argentina and Bolivia. As of the above date, the company operated 2 refineries and a network of 719 gas stations in Argentina. In addition, it produces various petrochemical products, such as styrene, polystyrene, synthetic rubber, fertilizers, and polypropylene in Argentina and Brazil. Further, Petrobras Energia Participaciones generates, transmits, and distributes electricity primarily in Argentina. Additionally, the company engages in the provision of oil, gas, and liquefied petroleum gas brokerage and trading services; transportation of gas in the south of Argentina; and processing and marketing of natural gas liquids. Petrobras Energia Participaciones was founded in 1946. It was formerly known as PC Holdings S.A. and changed its name to Perez Companc S.A. in 2000. Further, the company changed its name to Petrobras Energia Participaciones S.A. in 2003. Petrobras Energia Participaciones is based in Buenos Aires, Argentina.

[stonebluff]

The article is about PBR, not PZE.

[User 126618]

"It also imports its BioFuels to many other countries too,...."

Shouldn't that read: "It also EXPORTS its BioFuels.."

[BrianPursley]

BioFuels rape the environment. According to Jane Goodall, BioFuels are the worst thing that's ever happened to the rain forests but as long as PBR makes money who really cares?

www.reuters.com/articl...

Long PBR.

[Texbuz]

The sugar cane giant is CZZ aided by PBR's pipeline. Other than having the wrong tick ID and import rather than export are the other numbers reliable?

[Texbuz]

Forgot...Jim Cramer also made the same mistake sometime back.

[futuresFvalue]

I understand your frustration however, PZE chart was provided by SA and wasn't part of the original submission. Regardless, I have addressed the issue. As far as ticker is concerned. Last sentence, second paragraph from the bottom clearly states PBR as the ticker.

[User 192352]

Ron, Great Call, the stock is up 3 % after hours and will easily double by next year as they blew off estimates by huuuuuge margin, both in profit and revenue.