Petrobras' $240 Billion Tupi Oil Field: Good News for Brazil (and Owners of PBR) Last summer, when the price of crude passed $120 a barrel and crude futures markets lost all signs of rationality, Brazil's national oil company PetroBras added fuel to the fire when it announced the discovery of a brand new field off its coast containing an estimated 5 billion to 8 billion barrels of oil.
Analysts at Cambridge Energy Research later estimated that the new field, named Tupi, would require 15 oil wells to be drilled at a staggering cost of $240 billion.
The enormous cost seemed manageable under the guise of $125-a-barrel oil, and the company's NYSE-floated American depositary receipts motored from $50 to $75 in less than two months due to the excitement surrounding the Tupi find.
During the fall of 2008, as oil prices plummeted from their summer highs, energy analysts started rethinking the complexity and cost of the Tupi project, and PetroBras ADRs followed crude prices downward to their current price of $24 a share. However, most analysts suggest that Tupi is still economical at today's oil price. Furthermore, Tupi will likely have a life span of at least 20 years, during which the global price of crude will probably average out at a level that is well above $40 a barrel.
Most analysts also believe that PetroBras' fair value is well above $24 a share, and that PetroBras shares will likely appreciate for its investors in the medium to long term.
Conclusion: Brazil will set the market price for crude when Tupi comes fully online. The field will be economically viable unless a major new oil substitute is discovered and brought to market. PetroBras offers stockholders excellent medium and long-term growth potential.
If the Tupi oilfield is economical at today's oil price, then that changes the investment thesis for PBR immensely. Once investors realize that $100+ oil is not necessary for PBR to derive profits, this stock should do very well indeed.
If Soros likes it, I like it!!! From Forbes Magazine...
Rudy Martin of Latin Stock Investing recommends Rio de Janeiro-based PetroBras (nyse: PBR - news - people ), one of the world's 10 largest explorers and producers of oil and natural gas. He notes the company's growing reserves (just one field alone, the Tupi field, could increase the company's proven domestic reserves of 15 billion barrels of oil by 30% to 50% overnight), solid capital backing and a lock on the distribution of ethanol.
"Global oil production has been falling for the last three to five years," says Martin. "With OPEC and Russia cutting back production, further crude oil prices should gradually resume an upward climb."
Martin adds, "At these prices, this one looks like a clear winner for 2009 with higher oil prices."
Martin isn't alone in his enthusiasm for PetroBras. Billionaire George Soros also has a stake in the company.