Brazilian state-run energy giant Petroleo Brasileiro S.A. (PBR), or Petrobras S.A., announced the discovery of a new offshore oil site in Campos Basin, off the country’s southeastern coast. The find builds on the firm’s leading position in this hydrocarbon-rich area. 

Drilled to a total depth of 4,536 meters (2.8 miles), the 6-ABL-57D-RJS well encountered initial evidence of light, good-quality oil in pre-salt reservoirs (oil deposits located in the sea bed under thick layers of salt) in Campos Basin waters. The discovery well is situated in the Albacora Leste concession area, 130 kilometers (81 miles) off the coast of Rio de Janeiro and in 1,956 meters (1.2 miles) of water. Petrobras has a 90% operated interest in the prospect, while Spanish integrated major Repsol YPF (REP) holds the remaining stake. 

Share Issue Postponement 

In a separate development, Petrobras deferred its multi-billion dollar planned share issue until September. The stock offering of up to R$150 billion (or $84.8 billion), touted to be one of the world’s largest, was originally expected to take place as early as next month. 

Hours before the postponement announcement, the company received stockholder approval for the deal that will see the Brazilian government receive shares against the transfer of rights for up to 5 billion barrels of deep-sea pre-salt oil reserves to Petrobras. 

The Rio de Janeiro-based integrated major attributed the capitalization plan delay to Brazil’s energy regulator’s inability to have an independent estimate of the value of government-held oil reserves – the important next step in the process – before late August. 

The uncertainty about the upcoming issue is being seen as a setback to Petrobras’ ambitious 2010-2014 strategic plan, with projected investments of $224 billion during the five-year period. Petrobras will require huge capital expenditure to develop the deep pre-salt layers as part of the company’s strategic initiative to ramp up production from the current 2.5 million barrels of oil equivalent per day (MMBOE/d) to 3.9 MMBOE/d in 2014 and 5.4 MMBOE/d in 2020. 

Zacks Recommendation/Rank 

Petrobras ADR is currently rated as Zacks #3 Rank (‘Hold’), implying that the stock is expected to perform in line with the broader U.S. equity market over the next one to three months. This is supported by our long-term Neutral recommendation.
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