Brazilian oil giant Petroleo Brasileiro S.A. or Petrobras (PBR) announced the commencement of oil production from the Cascade 4 well in the field of the same name on February 25.
The Cascade field, along with another smaller concession Chinook, is located about 155.3 miles off the coast of Louisiana, at a water depth of 8,202.1 feet in the Lower Tertiary region of the U.S. Gulf of Mexico. The field remains well connected to the BW Pioneer floating production, storage and offloading vessel, or FPSO that has a daily processing capacity of 80 thousand barrels of oil and 500 thousand cubic meters of gas per day.
Petrobras stated that the Cascade is the first oil field in the U.S. portion of the Gulf of Mexico to be development by FPSO, although this has been extensively utilized in the Brazilian offshore regions.
Petrobras had planned to start operating both the Cascade and Chinook fields in 2010. However, the drilling moratorium imposed by the U.S. Government, following the Macondo oil spill disaster, delayed the initial planning. The company’s scheduling received another setback due to an equipment failure, after the consent from the U.S. Department of the Interior to use the FPSO in March 2011.
While Petrobras holds 100% interest in the Cascade, it acts as an operator in the Chinook field with a 66.7% stake. Total E&P, an unit of French company Total SA (TOT) controls the remaining 33.3% interest.
Petrobras is the largest publicly-traded Latin American oil company, dominating Brazil’s oil and gas sector. However, the company is fast expanding its horizon as an international company with exploration fields and investments in many different areas of the world.
In fact, management’s strategy of successfully leveraging Brazilian deepwater expertise into exploring upstream opportunities abroad have proved to work in favor of the company. This has provided a competitive edge to Petrobras over its peers.
However, we remain on the sidelines give the company’s exposure 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 maintain a long-term Neutral rating on the stock. Petrobras ADRs currently retain a Zacks #3 Rank, which translates into a short-term Hold rating.
To read this article on Zacks.com click here.
Zacks Investment Research
