Brazilian oil giant Petroleo Brasileiro S.A. or Petrobras (PBR) confirmed the discovery of superior quality crude oil in a second well drilled in Brazil’s Santos Basin.
The company drilled the well – 1-BRSA-976-RJS (1-RJS-691) – in a pre-salt region named Tupi Northeast that lies to the northeast of Lula Field. Drilled in a water depth of 6,991.5 feet, the well is about 139.8 miles away from the coast of Rio de Janeiro.
Initial analysis was performed through 26 degree API oil samples obtained by cable tests that identified a 951.4-meter thick oil column in carbonate reservoirs. Petrobras intends to carry on additional drilling in the well to evaluate the magnitude of the find.
In 2010, Petrobras entered into the Transfer of Rights Agreement with Brazilian National Oil, Natural Gas and Biofuels Agency and obtained the rights to explore the region. Under this assignment, the company drilled the first well, 3-BRSA-944-RJS (3-RJS-688A), in the Franco area.
Of late, Petrobras has struck oil in a number of prospects in Brazil. Early this month, Petrobras announced the discovery of hydrocarbon accumulation in the pre-salt layer in block BM-C-33, south of Campos Basin.
The company also hit an accumulation of crude oil and natural gas in Solimoes Basin of the Amazon, onshore northwest Brazil, in early February.
We remain optimistic on the medium- to long-term outlook on Petrobras based on its encouraging portfolio of investments, in particular in the prolific Espirito Santo, Campos and Santos basins of Brazil. The company is the operator in most of these exploration areas in which it holds interests ranging from 20% to 100%.
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 other energy majors such as ExxonMobil Corp. (XOM), PetroChina Co. Ltd. (PTR), Royal Dutch Shell plc (RDS.A). Hence, we maintain a long-term Neutral rating on the stock.
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