Last week's Barron's article: Drilling Deep and Flying High
Brazil's Petrobras could become one of the world's top oil companies if its three new deepwater wells are as plentiful as some expect.
THERE ARE GUSHERS and then there are gushers.
At a time when the oil industry is struggling mightily to find new wells, Brazil's Petrobras is sitting atop what appears to be the Western Hemisphere's biggest find in 30 years. The Tupi oil field, discovered off Rio de Janeiro two years ago and 65% owned by Petrobras, may contain as much as eight billion barrels of oil, an amount that would boost Brazil's reserves by more than 50%.
As if that weren't enough, the company has since found three other potentially lucrative, deepwater wells in the same area. And, with sophisticated operations in the Gulf of Mexico, it could be a big winner in President Bush's new drive to lift U.S. moratoriums on offshore drilling.
All this and high oil prices, too. Can it get any better?
In fact, Petrobras is a singularly tantalizing investment. "Buying Petrobras today is like having the opportunity to invest in Saudi Aramco 40 years ago," says Shawn Reynolds, portfolio manager of Van Eck Global's $1.03 billion Hard Assets Fund. Saudi Aramco, Saudi Arabia's state-owned oil company, today is the world's largest oil corporation in terms of proven reserves and production.
Investors already have struck it rich with Petrobras' stock (ticker: PBR for the American depositary receipts). Recently trading around $70, it has more than doubled over the past 12 months, far outpacing such rivals as ConocoPhillips (COP), Chevron (CVX) and ExxonMobil (XOM). Yet, bulls say the stock could climb another 25% or so within a year, perhaps hitting $90.
"If you're in oil, you have to own this stock," says Robert Levitt, asset manager of $500 million Levitt Capital Management, in Boca Raton, Fla. "They are sitting on the biggest oil find in years, that's why. You don't look at resource companies based on earnings; you look at their oil reserves. Exxon and Conoco aren't making any new discoveries. Petrobras just made the biggest one in years."