Oil Discovery by Petrobras

Brazilian state-run energy giant Petroleo Brasileiro S.A., or Petrobras ( PBR - Analyst Report ) announced the discovery of light hydrocarbons in the Sergipe-Alagoas basin offshore Brazil.

Light oil was revealed while drilling well 1-SES-172, which is also known as Muriu. The well is located in concession area BM-SEAL-10 (block SEAL-M-424). The well is located at a water depth of 2,583 metres, 85 kilometers off the Aracaju coast and drilling work has concluded at a water depth of 5,347 meters.

This is the fourth discovery by Petrobras in the same basin in 2012. The other three were in 1-SES-168 (Moita Bonita), 3-SES-165 (Barra) and 1-SES-167 (Farfan).

The detection of light oil in the reservoir was confirmed through log data analysis, pressure data analysis and fluid sampling.

Petrobras will move forward with logging operations and assemble rock and fluid data to assess plan and characterize the reservoir. At the end, the whole plan will be submitted to National Petroleum Agency (ANP) of Brazil.

Petrobras has embarked on an ambitious investment program for the 2012–2016 period, totaling a massive $236.5 billion. This is expected to substantially increase the company’s leverage and deteriorate its credit metrics in the ongoing economic downturn. Additionally, the increasing capital intensity of its operations may result in reduced returns going forward.

However, Petrobras’ results are heavily levered to changes in the overall energy price environment, which are inherently volatile and subject to complex market forces. Brazilian politics and economics as well as changes in the country’s energy legislation may have an impact on Petrobras.

Petrobras – one of the biggest energy companies along with ExxonMobil Corp. ( XOM - Analyst Report ) , Royal Dutch Shell plc ( RDS.A - Analyst Report ) and Chevron Corporation ( CVX - Analyst Report ) – currently retains a Zacks #3 Rank, which translates into a short-term Hold rating.