"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
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