Petrobras Taps Block Potential

Brazilian oil giant Petroleo Brasileiro S.A. or Petrobras (PBR - Analyst Report) plans to carry on extensive exploration activities on block BM-C-33, south of the Campos basin.

In early March, the company announced the discovery of hydrocarbon accumulation in the pre-salt layer in the block through the drilling of a well – 1-REPF-12D-RJS that is informally known as Pao de Acucar.

The well was drilled about 121.2 miles from the coast of Rio de Janeiro State and at a water depth of 9,186.4 feet.

Tests and analysis estimate that the block holds recoverable volumes of more than 700 million barrels of oil and 3 trillion cubic meters of gas (that is equal to 545 million barrels). Apart from Pao de Acucar, the potential of the block also includes the Seat and Gavea discoveries.

Other than Petrobras, which has a 30% interest in the concession, Norwegian companyStatoil ASA (STO - Analyst Report) holds a 35% stake. The remaining interest is controlled by operator Repsol Sinopec –– a partnership between Spain's Repsol-YPF and China’s state controlledChina Petroleum & Chemical Corporation or Sinopec (SNP - Analyst Report).

The consortium intends to submit an evaluation plan to the National Agency of Petroleum, Natural Gas and Biofuel Agency (ANP).

We maintain a long-term Neutral rating on the stock. Petrobras currently retain a Zacks #3 Rank, which translates into a short-term Hold rating.

Petrobras is the largest publicly traded Latin American oil company, dominating Brazil’s oil and gas sector. The company is also fast expanding its horizon as an international name with exploration fields and investments around the world.

Petrobras' know-how and proficiency in deep-water oil and gas exploration and production is reflected in its exceptional track record of hydrocarbon production growth, as well as prospects for production and reserves growth in the future, especially following significant offshore finds in the last few years.

However, we remain on the sidelines give the company’s exposure to the volatile oil and gas fundamentals, which are expected to impact profitability. Moreover, Petrobras’ huge investment requirements, operational hindrances and international business risks also add to our negative sentiment.