Petrobras Brazil is an interesting play in the energy sector. The current global recession fear has helped to beat the stock down from the $70's last year to a current price of about $35.00. From the extreme low of $17.78 made on November 19, 2008 the stock has already nearly doubled.
While serving a rapidly growing domestic market in 2008, Petrobras exported a record volume of 673,000 barrels per day of oil and derivatives, 9.4% more than in 2007 and topping-out with a volumetric surplus of 103,000 barrels per day. Total exports amounted to $21.245 billion, 42.7% above a year earlier.
The vision for Petrobras Vision by 2020 is to be one of the five largest integrated energy companies in the world and the preferred choice among their share holders. Petrobras is one of the leading companies in the world in having technology for deep water recovery of oil assets.
The Company has several competitive advantages compared with its current and future competitors, the principal being:
1.) Dominant market position in the production, refining and transportation of oil and oil products in Brazil. Brazil is a rapidly developing nation;
2.) Significant and growing oil reserve base with ongoing exploration in promising areas;
3.) Advanced technological know-how for deep water exploration;
4.) Reduced costs due to its operations being executed on a large scale and to the integrated nature of its operating segments;
5.) Solid position in the growing Brazilian natural gas markets;
6.) Proven success in attracting international partners to all areas of the Company's activities. And
7.) Strong backing by the Brazilian government.
As of December 31st, 2008, the proven reserves of crude oil, condensate and natural gas in the fields under concession of Petrobras amounted to 14,093 billion barrels of oil equivalent (boe), representing an increase of 1.2% in relation to 2007. In revealing its business plans and reserve figures. Petrobras Brazil is one of the world's most transparent oil companies.
Last November, Petrobras, the state-controlled oil giant of Brazil, announced that it had found between 5 billion and 8 billion barrels of light, sweet crude in a field called "Tupi". This field is wedged under a layer of salt deep beneath the floor of the Atlantic Ocean off the cost of Rio. Some geologists believe there is even more oil in the "pre-salt" fields.
Extracting oil from Tupi is a gigantic expensive technical challenge. The salt has acted as a "perfect seal" to preserve the oil, according the director of Petrobras' projects in the pre-salt fields. With the drop in the price of oil over the past few months Petrobras is probably not in a hurry to develop this field. However, the Tupi discovery is one of the most significant oil finds in recent years and the field will be developed as oil prices escalate in coming years.
I do not expect crude oil to remain at current levels for very long. In my opinion peak oil has already arrived as maximum world production seems to be limited to about 85 million barrels a day. Major oil fields, like Mexico's Cantarell field, are in a serious stage of depletion. Demand for oil has not declined by very much, even in the face of the world recession. The world is hooked on oil and alternative energy supplies will not make a dent in the total demand for oil, at least not in the foreseeable future.
At current price levels Petrobras is still a compelling play. Current low prices for crude oil are due more than anything to the financial meltdown and the forced liquidation of hedge fund and investor positions in crude rather than supply and demand considerations. The world, even in recession, has a huge appetite for oil and oil products. Low prices are now setting the stage for another huge price spike. Due to low prices oil exploration and drilling projects are being cut back and the degree of oil that will be needed as the world economy rebounds will not be there.
Petrobras shares at current price levels gives the patient investor a wonderful opportunity to own shares in a well managed company, in a high growth rate economy, in an industry that is indispensable in an energy hungry world. As Mexico's oil production continues to fall Brazil and Petrobras will likely become an ever more important exporter of oil to the US market.
In 2007 and in the first half of 2008 the prices of Petrobras' shares and American Depositary Receipts (ADRs) as you might expect tended to follow the oil price increase, (then the oil price decrease in 2008 ) yielding a higher return than the Brazilian U.S. stock market indices. In 2007 at the São Paulo exchange (Bovespa), the Company's common (PETR3) and preferred stock (PETR4) rose by 92.7% and 77.5%, respectively, whereas the Ibovespa recorded a nominal increase of 43.6%. At the New York stock exchange (NYSE), the Dow Jones index rose by 6.4% in the year, while the Company's ADRs appreciated by more than 100%.
Even with oil back to the $50 a barrel level Petrobras has been an impressive stock market performer. On the next spike in oil prices Petrobras will likely double in price yet again. From current levels I would expect at least a 100% to 200% gain in Petrobras stock should crude oil prices once again reach the $150 a barrel level.
No comments:
Post a Comment