We are keeping our Buy recommendation on Petrobras (PBR) ADRs. We like Petrobras for its positive production-growth profile, and the improving outlook for its downstream business. Moreover, the discovery of the giant Tupi field opens up a new range of possibilities for the company in the long run.
The company's large inventories of development projects are also positive. It is also important to mention that Brazil was recently upgraded to investment grade by Standard & Poor's. Finally, second quarter 2008 results were better than expected, and the outlook for the following quarters remains quite encouraging, even though lower oil prices. Petrobras is expected to grow annual volumes by approximately 6% over the next few years.
Petrobras' robust portfolio of upstream assets gives it a positive production-growth profile. The Tupi oil field has a potential, to be confirmed, between 5 and 8 billion BOE [barrels of oil equivalent]. The Tupi field is within a whole area which is expected to have total reserves over 60 billion BOE.
The Brazilian government is expected to increase or, even worse, a new state-owned company could be created just to explore the pre-salt oil field. Despite this decision, we still have a positive view on Petrobras. Whatever the outcome, the Brazilian national oil and gas agency (ANP) has already sold nine concessions for Petrobras and its partners in the pre-salt area.
Some months ago Petrobras announced a R$2.1 billion (US$1.1 billion) acquisition of Suzano Petroquimica S.A., an important Brazilian petrochemical group. The company is leading the consolidation process in the Brazilian petrochemical sector.
Read the full analyst report on PBR
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