Petroleo Brasileiro S.A. or Petrobras (PBR) along with its partners BG Group and Galp Energia announced the successful drilling of the extension exploratory well in the pre-salt part of Brazil’s Santos Basin. Acting as an operator, Petrobras controls 65% stake, while the associates holds a respective interests of 25% and 10%.
The well – 3-BRSA-1032-RJS (3-RJS-697) – is situated at a water depth of 7,053.8 feet in the Iara Evaluation Area, about 138.6 miles off the Rio de Janeiro coast and 5.6 miles from the initial discovery well. This is the third well to be explored as per the Discovery Evaluation Plan 1-BRSA-618.
Commonly known as the Iara Oeste, the well encountered good quality oil samples at an almost 5,430 meter depth in the carbonate reservoirs. The discovered oil is estimated to range between 21? and 26? API.
The consortium, as per the Evaluation Plan approved by the National Petroleum, Natural Gas and Biofuels Agency, intends to conduct further tests and evaluation to assess the potential and productivity of the region. The Iara field is estimated to contain a reserve of recoverable volumes of 3 billion to 4 billion barrels of oil equivalent.
Recently, Petrobras witnessed exploration successes in a number of basins across Brazil. Mid last month, Petrobras confirmed the discovery of superior quality crude oil in the Tupi Northeast pre-salt region of the Santos Basin.
The company also hit a hydrocarbon accumulation n the pre-salt layer in block BM-C-33, south of Campos Basin, in early March.
State controlled Petrobras is the largest publicly traded Latin American oil company that dominates Brazil’s oil and gas sector. We continue to have a positive medium- to long-term outlook on Petrobras thanks to its encouraging portfolio of investments.
However, we believe that investors’ sentiments for Petrobras will remain lukewarm due to the volatile oil and gas fundamentals, which are expected to impact profitability. Moreover, Petrobras’ huge investment requirements, operational hindrances and international business risks also add to our negative sentiment.
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) and Royal Dutch Shell plc (RDS.A). Hence, we maintain a long-term Neutral rating on the stock.
Petrobras currently retains a Zacks #3 Rank, which is equivalent to a short-term Hold rating.
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