Petroleo Brasileiro S.A. or Petrobras (PBR) has stuck superior quality oil in the ultra deep waters of Santos Basin.
The company came across the accumulation while drilling the well — SPS-86B (4-BRSA-971-SPS), unofficially known as Carcara, in block BM-S-8. The well is located about 144.1 miles off the coast of Sao Paulo State and was drilled at a water depth of 6,650.3 feet in the pre-salt region.
This happens to be the third well explored in the Discovery Evaluation Plan area of 1-BRSA-532A-SPS aka Bem-te-vi prospect.
Initial evaluation identified traces of oil of approximately 31º API. Petrobras intends to carry on further drilling in the well to calculate the lower limit of the reservoirs and estimate the potential of the adjoining zones.
Petrobras acts as the operator of the block with a 66% interest. Petrogal Brasil, Barra Energia do Brasil Petroleo e Gas Ltda. and Queiroz Galvao Exploracao e Producao S.A. hold a respective interest of 14%, 10% and 10%.
As per the Evaluation Plan approved by the Oil, Natural Gas and Biofuels National Agency, the consortium will consistently conduct activities and investments required for the assessment of the area.
Brazil has huge oil reservoirs that lie below the Espírito Santo, Campos and Santos Basins in deep and ultra-deep water. These reserves, estimated to hold 50 billion barrels, are widely thought to be the most important oil finds in recent years. Petrobras is the operator in most of these exploration areas, and holds interests ranging from 20% to 100%.
We are maintaining a long-term Neutral recommendation on the stock. We believe that continued demand growth in Brazil (expected to outperform developed countries in the next few years), together with all the new investments and acquisitions, will fuel Petrobras’ medium-term earnings outlook.
Additionally, we expect the company to benefit from its expertise in deep-water operations, its huge recent discoveries (which could double its resource base) and the growing domestic refined products market.
However, we are concerned about investor skepticism regarding the company’s huge investment requirements, as well as the possibility of heightened state interference and earnings dilution following the $70 billion share sale.
As such, we expect the company to perform on par with the broader industry and other energy majors such as ExxonMobil Corp. (XOM), PetroChina Co. Ltd. (PTR), Royal Dutch Shell plc (RDS.A).
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