Two Exciting Brazilian Oil Stocks

Includes: BRGXF, PBR
by: Kurt Wulff

Among stocks in our coverage, Petrobras (NYSE:PBR) and BG Group (OTCQX:BRGXF) offer exciting long-term participation in the world’s most important oil discoveries of the past three years. The finds are in the Pre-Salt formation of the Santos Basin offshore Brazil under water a mile deep. After the market decline of recent months, both stocks offer better entry points for accumulating shares. Though our buy ratings remain suspended amid tumultuous financial markets, we believe in the long-term appeal of energy investments.

Meanwhile, in a press release last week, Petrobras estimated recoverable reserves of 3 to 4 billion barrels at Yara (65% PBR, 25% BG). Combined with last year’s estimate of 5 to 8 billion barrels at nearby Tupi (65% PBR, 25% BG), the range of total recoverable reserves has a midpoint of 10 billion barrels. That is enough to support a million barrels a day from the ten platforms PBR has ordered for delivery in 2013 to 2016.

Estimates of Present Value include $102 billion in PBR and $24 billion in BG for the Pre-Salt off Brazil. McDep Ratios imply that market cap and debt is 0.58 and 0.73 times PV for PBR and BG respectively. Finally, six-year oil ended its uptrend compared to the 40-week average signaling a need for more patience in anticipating renewed price gains.

Originally published on September 16, 2008.

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