Petrobras: Set to Become a Global Oil Major - Barron's 31 comments
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"Buying Petrobras today is like having the opportunity to invest in Saudi Aramco 40 years ago," says Shawn Reynolds of Van Eck Global's Hard Assets Fund. Barron’s concurs that Petrobras (PBR) could become one of the world’s top three oil companies, and sees a potential 25% stock price gain this year. That’s after shares doubled to $70 since 2007, in light of Petrobras’ major oil find in 2006. Petrobras is so confident that its Tupi oil field contains five to eight billion barrels of oil - the largest find in 30 years - that it’s already contracted ships for drilling. Even if that’s priced in to the stock, there’s also the potential of yet three more major deepwater wells discovered nearby since.
It’s possible those three won’t actually be major finds, and Brazilian oil subsidies hurt Petrobras’ bottom line. Deep water drilling is three times more expensive than sand drilling, and
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Roger Nusbaum cautions that foreign stocks have become more risky, or less of a no-brainer, than they were a couple of years ago. Petrobras’ may be one of the riskier ones now, as its multiples have gone up remarkably in the interim. If oil does go to $200, Nusbaum thinks PBR is likely to rise with it regardless of its valuation.
Kurt Wulff has an idea for those who missed this year’s run up in Petrobras since its major discoveries. (Wulff characterizes one of the discoveries, the Carioca block, as being possibly several times the size of the Tupi field.) “Investors willing to give up voting rights may be interested in [Petrobras] preferred stock with the same pro-rata ownership. Making up 42% of shares outstanding, the preferred was quoted most recently at 84% of the price of the common.”
Jason Schwarz says Petrobras’ recent deepwater finds could yield 33 billion barrels of oil cumulatively. This contravenes the 'peak oil' theory - that the world is running out of oil. Incidentally, while Barron’s says the Tupi field could double
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This article has 31 comments:
E. Roche (Freedom Mountain Investments)
Oil will be $80 in 6 months...all the forces are against it...
Since current oil prices haven't been priced in to a number of oil stocks, there are bargains there. Petrobras has great potential, but it's not one of the bargains at this point, IMO.
2. regardless of the ethanol fiasco/looming disaster and understanding that we that for the sake of utility and expediency we will rely on oil for some years to come, fossil fuels are a counter productive way to view the future of world energy. the oil industry is dead. they just don't know it yet.
Oil find by Petrobras will cost $40-50 to extract. The bigger reserves are under salt layers which noone knows how to drill. Wait for the environmental groups to study this and they will be all over this.
Tell me, are any of you smarter than Ken Heebner?
A few points are worth noting here:
1) Brazil's president may come from a leftist background, but he has governed the country mostly as a pragmatic centrist.
2) The government ownership of PBR is a feature, not a bug: it puts PBR shareholders on the same side of the table as the Brazilian government. As a PBR shareholder, Brazilian resource nationalism works to your advantage. Who do you think is going to get the lion's share of any new discoveries off the coast of Rio de Janeiro, Petrobras, or a foreign joint venture partner such as Respol? The question answers itself.
3) The engineering challenges of the Tupi field are daunting, but most likely surmountable.
4) Environmentalists? Brazil isn't the United States. Its *leftist* president is enthusiastic about drilling this oil. You think his political opponents on the Brazilian right are against it? There seems to be more pragmatism across the political spectrum in Brazil; unlike the here in the U.S., the idea of leaving billions of barrels of oil in the ground seems to have never occurred to them.
Ken Heebner is indeed a genius, and if memory serves, he bought PBR last year before it ran up 100%. I am not sure if he is still adding to it at these prices.
E. Roche (Freedom Mountain Investments)
2. I'm not comfortable with the "like Saudi Arabia 40 yrs ago" call; as 40 yrs from now, oil will probably be cheap again because of new source fuels are cheaper.
3. It will be many years before PBR can bring those new finds to market.
4. PBR absolutely MUST have high oil prices to justify the huge cost of oil recovery at those depths and other technical challenges.
5. At PBR's present P/E, there are likely many more attractive opportunities.
LONG PBR, XOM
Lest I forget......the Iranians will get wacked by the Israeli airforce and that should make tanker navigation in the Straits of the Middle East a little interesting too......................
seekingalpha.com/artic...
Petrobras is a player there, as well. 3D seismic and depth migration has truly revolutionized oil exploration. There are more things under the Earth, Horatio, than are dreamt of in your Philosophy. -w/apologies to the Bard.
What Jason Swarz may not know, and many don't, is that the optimistic potential for Brazil is less than one year of world wide consumption. What the world would need to prove Swarz right is a 500 billion barrel field. Tupi and Carioca are but drops in the bucket relative to the giant fields of Saudi Arabia, which are now in decline. The world burns 30 billion a year, the US burns 22 million barrels a day. The US has 5% of the world's population, and burns 25% of the world's oil. Extraoplate this to China, India, the Asian tigers, etc. and overlay this with growth rates in these countries. Not only that, but watch the growth rates in the Middle East. Those countries are breeding like rabbits and are now keeping much more oil to satisfy their own populations.
the US has a right leaning President a deficit and a patheticly weak currency.
Now what was the point?
Even the most pollyannish sunshine pumper will admit that the difficulty and cost of extracting oil is increasing rapidly worldwide. This article actually fits perfectly into the facts of peak oil: oil will be increasingly difficult (and expensive) to extract.
Heebner said this on CNBC last week.
If you think crude will be worth less several years from now than tell please expain your thesis to me because I don't get it.
Hah. Here's what happened if you invested in Aramco:
1956 Standard Oil of New Jersey (now Exxon) and Socony-Vacuum Oil (Mobil) confirms scale of Ghawar, world's largest oil field.
1966 Tankers begin calling at offshore crude oil loading platform.
1973 Saudi Government acquires 25 percent interest
1980 Saudi Government acquires 100 percent
The eleventh annual report of Amerada Corporation (now Hess) shows a loss for 1931, of $1,701,647.81 Net production of crude oil was 5,145,386 barrels.
The average price of crude oil in 1931 was $0.60 against $1.23 in 1930.
"General conditions in the oil industry are still far from favorable, but progress has been and is being made toward bringing about a healthy balance between supply and demand, particularly in the producing branch of the industry. There is no reason to believe that the acute over-production of crude oil existing during the last few years will be a permanent condition and your directors are confidently looking forward to a not very distant day when a low cost producer of crude oil can make a satisfactory profit.
(The above was copied from an actual Amerada annual report).
Where in the hell were the liberals with "Big Government" bail out programs? No where, thank God! Amerada managed to work its way through a tough period by the grace of good management, guts, determination, and the ultimate salvation, WW-ll. Of course, FDR would have liked to have taken credit for this, along with ending the depression, never mind the war economy!
this is your last chance to buy at these sale prices in the $120-130 range