Tuesday, May 27, 2008

Bullish On Petrobras

Growing reserves at 6% annually. Peak oil?

Zacks: New Reserves for Petrobras

We keep our Buy recommendation on Petroleo Brasileiro SA (Petrobras) (NYSE: PBR) on the Brazilian state oil company's positive production-growth profile and the improving outlook for its downstream business. The recent discovery of the Tupi field opens up a new range of possibilities for the company in the long run.

Moreover, the continued high price of oil and the company's large inventory of development projects are also positive. Finally, Petrobras' first quarter results were better than expected, and the outlook for the following quarters remains encouraging.

Most of Petrobras' domestic operations are located in the offshore Campos Basin, which is Brazil's largest oil region and is one of the most prolific oil and gas areas in South America. Even without considering some important new discoveries, the company is expected to grow annual volumes by about 6 percent over the next few years. The company has laid out a realistic, but aggressive, plan to grow production volumes over the next few years by competitively developing its extensive, proved undeveloped reserve base in the Campos Basin and in select international markets, using its considerable expertise in deepwater oil exploration.

Until recent quarters, PBR used to trade at a discount due to the difficult political environment in Latin America. However, after the discovery of the new oil field at Tupi, with a reserve potential of over 60 billion BOE [barrels of oil equivalent], PBR trades at 19.7x our 2008 earnings estimate, at a considerable premium over the industry mean of 11.4x.

In the near term, the stock should benefit from the positive outlook for the domestic oil industry and the recent upgrade of Brazil to investment grade by S&P. We expect PBR's P/E multiple to expand to around 21.5x our 2008 earnings and set a target price of $79.50 on the stock.

2 comments:

Anaconda said...

ARTICLE REVIEW

National Geographic,
Tapped Out, World oil demand is surging as supplies approach their limits.
Paul Roberts, June 2008,

National Geographic is a venerable, mass publication, and is perceived as conveying the received 'conventional wisdom' on the subjects it covers.

Peak oil is the theme of this short article by Paul Roberts, author of The End of Oil.

The usual Peak oil themes are struck, highlighting the slowing of crude oil production in recent years, while admitting no one knows when Peak oil will be reached, but suggests it will be sooner rather than later. It also reports statements from international oil company executives, that exceeding 100 million barrels a day will be difficult and that oil production is limited by politics, rather than geology, implying the executives have their heads in the sand.

As is typical of Peak oil articles, it speaks with authority of the geological limits, while failing to present any opposing view, nor does it mention the vast, new deepwater exploration being conducted and the attendant investment. It does mention Brazil's Tupi oil field, but minimizes it by comparison to Ghawar, while failing to mention Tupi is just one of a string of recent large discoveries off the coast of Brazil. No other new discoveries were mentioned.

Forget about any discussion of abiotic oil theory and how the recent deep oil discoveries are more consistent with abiotic theory than "fossil" theory.

"Fossil" theory with its finite, restricted limits is assumed without discussion.

Opening up new areas for oil exploration within the U.S. and its offshore waters didn't rate a mention, either. The tone was strictly, "nothing can be done about it."

Clearly, the agenda was to spread the Peak oil gospel without rebuttal.

It's sad to see The National Geographic Society endorse junk science and spread it with the society's publication.

Because that's all Peak oil is -- junk science.

Belief in Peak oil does facilitate increased prices for crude oil, but also implicitly promotes the idea that oil exploration is a game of diminishing returns. In the long run, this attitude will hurt the oil industry, and justify in some minds that oil exploration is not worth the environmental damage (however false), if supplies will run out anyway.

Oil company executives need to be aggressive, and specific about the new discoveries and their magnitude. And frankly, the huge potential of U.S. offshore areas for exploration.

It needs to be made clear that new technology and new capability allows for vastly increased oil discoveries in areas no one has been able to successfully explore before. And, that these new areas have promise to produce discoveries far larger than was typical just a few years ago.

Abiotic petroleum has hard, confirmed science on its side -- it's time to use it -- to expose the sketchy science on the other side.

And expose the scientifically unethical methods peakers use to spread their fear mongering propaganda.

America needs to know it can have stable, long term supplies of petroleum.

Articles, such as this by Mr. Roberts need to be challenged at every turn.

The myth of Peak oil weakens America by inducing a passivity alien to the American spirit.

Anaconda said...

POSTSCRIPT: ARTICLE REVIEW

Objection could be made that the review of the National Geographic article was unduly harsh in stating:

"...the scientifically unethical methods peakers use to spread their fear mongering propaganda."

And, further, calling Peak oil "junk science."

In science, and the study of petroleum geology is most definitely a science, proper scientific method requires that opposing theories and contradicting physical observations be acknowledged and explained away if possible, or admitted if it can't be explained away.

One sided articles, which claim scientific merit, on controversial scientific points, are unethical on their face. One sided articles, which claim scientific merit, while ignoring contrary views, are really simple political propaganda.

But science is not politics, and propaganda has no place in a serious scientific discussion.

National Geographic is a scientific journal. Yes, it's been popularized, but it cut it's teeth as a substantive scientific journal, and still holds itself out as one.

Science is a discipline, or tool, to search for the truth regarding physical observations.

It's a sad day when National Geographic has sunk to publishing one sided propaganda masquerading as serious scientific discourse.

Yes, Peak oil is "junk science" because it dares not take on the opposing view directly, and when unopposed, is one sided. And, when you closely examine the supposed scientific underpinnings, it doesn't stand up to close inspection.

Tell me it ain't so, National Geographic, tell me it ain't so.