Gigem77

Brazil and Petrobras Are Awash in New Oil

PBR has placed a dozen long term contracts for deep water rigs. Given the technical challenges and the political risks inherent to their stock, I would rather own the companies that lease rigs to PBR. Transocean, Seadrill, Scorpion and a few others are on this gravy train. I own some RIG.

The Market's View on Oil

What is the EPS range for your list? What PE did the market assign when oil was 85 in January and what was the PE when oil was 147? How does that range compare with today's price of 112? If the PE range is tight, and it is, then how does that affect your theory?

DVN is primarily a natural gas producer with expanding production. They have a forward PE of barely 6 today. When crude was 147 and natgas was nearly 14, their forward PE was about 7.5. You use a trailing PE of 10. That's not much difference.

A better hypothesis is that the market does not like energy shares and always assigns very low multiples. That's why many of the big energy companies are buying back their own shares.

Analysts estimate that DVN will make 12 dollars per share this year and 14 in '09. Assign any double digit PE you like and you get a price higher than the current one.