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Petrobras Inks FPSO Deal

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Brazilian state-run energy giant Petroleo Brasileiro S.A., or Petrobras (PBR - Free Report) entered into a 20-year agreement with Schahin Petroleo e Gas S.A. and Modec Inc. to lease a floating production, storage and offloading vessel, or FPSO in the pre-salt Santos Basin.

The facility will be operational in a production development project in Iracema Norte, within the BM-S-11 block. The project work covers the interlinking of the FPSO to 16 wells, of which 8 will be used for the production of oil and 8 for injection purpose.

With the FPSO slated to be delivered in October 2015, production will likely start in December, same year.

As per the Letter of Intent signed, Petrobras will deploy the FPSO some 186.4 miles off the Brazilian coastline and at a water depth of about 7,329.4 feet. The platform exhibits a daily processing capacity of 150,000 barrels of oil and 8 million cubic meters of natural gas.

Apart from Petrobras – which holds 65% interest and acts as the operator of the BM-S-11 concession – BG Group plc and Petroleos de Portugal control respective stakes of 25% and 10%.

Headquartered in Rio de Janeiro, Petrobras is the largest integrated energy firm in Brazil and one of the largest in Latin America. The company operates in six segments: ‘Exploration and Production’, ‘Refining, Transportation and Marketing’, ‘Distribution’, ‘Gas and Power’, ‘Biofuels’ and ‘International’.

In late October, this year, Petrobras announced third quarter profit of R$5.6 billion or R$0.43 per share, compared with earnings of R$6.3 billion or R$0.49 in the year-earlier quarter. Earnings per ADR came in at 42 cents (1 ADR = 2 shares), way behind the Zacks Consensus Estimate of 67 cents. During the corresponding period last year, Petrobras earned 60 cents per ADR.

Petrobras’ net operating revenues of $36.4 billion were down 6.3% from the prior-year quarter level. The company’s results were dragged down by persistent weakness in its refining unit.

Petrobras – the fourth biggest company by market capitalization after ExxonMobil Corp. (XOM - Free Report) , Royal Dutch Shell plc (RDS.A - Free Report) and Chevron Corporation (CVX - Free Report) – currently retains a Zacks #4 Rank, which translates into a short-term Sell rating. We also maintain a long-term Underperform recommendation on the stock.

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