U.S. Markets closed

Petrobras, Subsea 7 in $1.6B Deal

Zacks Equity Research

Brazil's state-run energy giant, Petroleo Brasileiro S.A. or Petrobras (PBR), has awarded three contracts – worth roughly $1.6 billion in total – to Norwegian oilfield services firm Subsea 7 SA (SUBCY).

Per the deals, Subsea 7 will manufacture and operate three new-build flexible pipe-lay support vessels (:PLSV). The operations will include engineering and project management services and also the installation of flowlines, umbilicals and tools. The contract period for each of the three developments will be five years.

The three PLSVs – that are planned to be constructed at the IHC Merwede shipyard in Holland – will be delivered by the third quarter of 2016, fourth quarter of 2016 and second quarter of 2017, respectively. The vessels will be able to operate up to water depths of 3,000 meters.

The estimated cost of the three PLSVs will be around $950.0 million, which also includes the cost of transporting the vessels to Brazil.

Petrobras is the largest integrated energy firm in Brazil and one of the largest in Latin America. It produces substantially all of Brazil’s crude oil and natural gas and accounts for almost all of the country’s refining capacity.

On the flip side, the Brazilian government, the company’s majority shareholder, has a history of political interference in Petrobras’ affairs. We do not expect this situation to change in the short- to medium-term. This may impact the company’s performance as the government’s interest might not coincide with that of the minority shareholders.

Petrobras currently retains a Zacks Rank #3 (Hold), implying that it is expected to perform in line with the broader U.S. equity market over the next 1 to 3 months.

However, two firms in the energy sector with a favorable Zacks Rank are Dril-Quip Inc. (DRQ) and Ferrellgas Partners LP (FGP). Both the stocks currently retain a Zacks Rank #1 (Strong Buy).

Read the Full Research Report on PBR

Read the Full Research Report on SUBCY

Read the Full Research Report on DRQ

Read the Full Research Report on FGP

Zacks Investment Research

More From Zacks.com