Sunday, March 30, 2008; F02
In the race to exploit deepwater oil and gas reserves, keep your eye on Brazil. That's the conclusion of Elliott H. Gue, editor of the newsletter Energy Strategist. Deepwater, in Gue's view, is the final frontier of oil field exploration. And Brazil is set to become one of the dominant players in the years ahead, following a deepwater oil field discovery late last year that could be the biggest uncovered anywhere in the past two decades. Gue said he believes that Brazil is poised to overtake Venezuela as the largest oil producer in South America by 2013.
The key player for investors is Brazil's national oil company, Petrobras, which trades on the New York Stock Exchange under the symbol PBR. Gue likes two other U.S.-listed companies with exposure to the industry: offshore engineering and construction firm Acergy (ACGY) and oil field-services company Weatherford International (WFT). A third company, seismic surveyor CGG Veritas, is listed in Paris.
Brazil has sought out promising new fields for exploration more aggressively than Venezuela has, Gue wrote in a report this month, adding that Venezuela's oil production has declined in the past decade. Brazil's new deepwater oil find has prompted speculation that the country could be asked to join the Organization of the Petroleum Exporting Countries.
"Petrobras is just at the leading edge of a new production boom as it brings new deepwater projects on line gradually to 2012," Gue wrote, adding that the oil giant is "widely regarded as the best-run national oil company."
His only concern with Petrobras is its high stock price. The shares have climbed about 24 percent in the past year and a half. The company trades at a price-earnings ratio of 17.8, compared with 11.7 for Exxon Mobil and 9.6 for Chevron.
But the advantages of the stock outweigh its higher price, Gue said. Petrobras has access to more reserves than other oil explorers do. "Petrobras deserves to trade at a premium valuation because it has far higher production growth potential than most of the integrated oil companies," he wrote.
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