ExxonMobil Corp. (XOM) and Hess Corp. (HES) started drilling the third well in an offshore Brazil Block, BM-S-22. Last year, the companies had failed with a dry hole in the same block. The block is situated in Santos Basin.
Each of the companies hold a 40% interest, while Petroleo Brasileiro SA or Petrobras (PBR), Brazil’s state-controlled oil company, owns the remainder.
Exxon said that the company is using Seadrill Ltd.’s West Polaris rig to drill the well in 2,272 meters (7,454 feet) of water in the Santos Basin.
After earlier finding signs of oil at a well in the same block, Exxon failed to discover oil or natural gas at the Guarani well last year. Santos is the most prolific offshore area in Brazil, where extensive exploration and production activities have been noticed in recent years. Importantly, the two largest oil finds in the Americas in 34 years, Tupi and Libra, are located in the SantosBasin.
We continue to see an upstream momentum on the back of Hess’ large inventory of exploration and development projects.
Hess’ improving fundamentals, commodity price leverage and exposure to areas with high resource potential such as Brazil, Ghana, Libya and offshore Australia position the stock to outperform its peers.
On the other hand, the growth outlook of Exxon is more vivid on the back of solid access to unconventional resources as the entire business of XTO Energy is now on its board. However, as access to new energy resources becomes more difficult, ExxonMobil, like most of its peers, is facing headwinds to replace its reserve. It remains to be seen how the companies will develop the Brazilian deepwater.
Our Neutral recommendation for Exxon and Hess remains unchanged at this stage with the Zacks #3 Rank (Hold).
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