Petrobras: The Real Winner From Brazil’s Offshore Oil Boom
by Mike Kapsch, Investment U Research
Thursday, January 26, 2012
Several miles off the coast of Rio de Janeiro, as much as $5 trillion in untapped crude oil is sitting under Brazil’s pre-salt fields.
Investment U’s Jason Jenkins stated last December that this massive find could make Brazil one of the world’s top five oil-producing nations in just the next few years.
Dan Bartfeld, a well-known project finance partner at Milbank, Tweed, Hadley & McCloy, says, “Brazil will continue to provide a huge amount of opportunities for industry in 2012.”
Energy firms from all over of the globe desperately want in on a piece of the action.
Yet one oil and gas company – Anadarko Petroleum (NYSE: APC) – is looking to cut ties entirely from the one million acres it owns in Brazil’s pristine pre-salt fields.
And it raises the question, why?
The Truth Behind Brazil’s Pre-Salt Reserves
Anadarko Petroleum is widely known today for its involvement in the 2010 oil spill in the Gulf of Mexico.
It owned 25% of the Macondo well that dumped five million barrels of oil into the sea and claimed the lives of 11 workers.
Last October, Anadarko reached a $4-billion settlement with BP (NYSE: BP) over the tragic spill. The attempted sale of its Brazilian pre-salt acreage is undoubtedly to help pay off its debt.
But Anadarko owns energy projects all over the world. In Brazil, it has multiple deep-water prospects near already existing oil discoveries.
Why would it want to abandon its efforts there with so much oil to be produced in the near future?
The answer is more than likely Petroleo Brasileiro (NYSE: PBR), or Petrobras.
Brazil’s State-Owned Pre-Salt Cash Machine
Recent regulations by Brazil’s government have given Petrobras a huge advantage over other companies looking to profit in the pre-salt oil fields.
Brazil now requires production-sharing agreements for all future production in the region to go through Petrobras.
More specifically, Brazil’s largest oil company can claim 30% of any project regarding the pre-salt fields. It will also lead all future operations in the region.
It’s no surprise Petrobras is getting such royal treatment. After all, it was created by the Brazilian government and is a partially state-owned company today. Brazil simply wants to keep as much profit as possible at home (as well as do everything it can to prevent another offshore oil spill catastrophe).
Yet shareholders aren’t too keen on Brazil’s aggressive stance.
Over the past year, Petrobras’ shares have fallen 22%.
But this looks way overblown…
A Final Word
When it comes down to it, as much as 50 billion barrels of oil will be produced from Brazil’s pre-salt fields over the next decade. Petrobras will be first in line to cash in as these developments take shape. And trillions of dollars are at stake.
Good Investing,
Mike Kapsch
Article by Investment U
