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Petrobras: '14 Plan for Libra Field

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Brazilian state-run energy giant, Petroleo Brasileiro SA or Petrobras (PBR) announced that the consortium – in which it has a 40% stake – has approved a working and investment plan for the Libra oil fields. The consortium agreed on a 2014 capex budget of $400–$500 million for the activities to be undertaken on the Libra block.

Petrobras announced that two wells will be drilled in the latter half of 2014, completion of which is expected in the first half of 2015. The exploration phase will include 3D seismic acquisition of the entire block and an extended well test to be performed toward the end of 2016.

The production share agreement, signed on Dec 2, 2013, allows four years to complete the exploration phase on the Libra block. This promising prospect, situated in the ultra-deep regions of the Santos Basin, was discovered by well 2-ANP-0002ARJS, which was drilled in 2010.

Apart from Petrobras, other parties in the consortium include Royal Dutch Shell plc (RDS.A), Total SA (TOT), CNOOC Ltd. (CEO) and China National Petroleum Company (“CNPC”). Shell and Total hold 20% interest each whereas CNOOC and CNPC have 10% stake respectively.

Petrobras is the largest integrated energy firm in Brazil and one of the largest in Latin America. The long-term outlook on the company looks promising with its strong pipeline of development projects and impressive exploration successes.

However, we believe that the company’s $237 billion five-year investment program could substantially increase its leverage and deteriorate credit metrics during the current downturn in the economic cycle. Additionally, the company’s declining production trend is a concern.

Headquartered in Rio de Janeiro, Petrobras currently holds a Zacks Rank #3 (Hold), implying that it is expected to perform in line with the broader U.S. equity market over the next one to three months.

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