Petrobras Affirms Good Quality Oil in Santos Basin - Analyst Blog

Brazilian state-run energy giant, Petroleo Brasileiro SA or Petrobras PBR reported the completion of formation test on well 1-SPS-98. The well is located offshore São Paulo, at water depth of roughly 1,871 meters. The test result revealed the existence of good quality oil (32º API) in the Santos Basin, confirming the company's discovery declared in Feb 2013.

Notably, 1-SPS-98 is the first well in block BM-S-50, that was drilled by Petrobras. While drilling, the company reached a depth of roughly 7,110 meters and found 159 meters pre-salt reservoirs.

Petrobras is the operator of the consortium with a 60% interest. BG E&P Brasil holds a 20% stake, while the remaining 20% is owned by Repsol Sinopec Brasil – collaboration between Spain's Repsol S.A. (REPYY) and Chinese refining giant Sinopec SNP.

Petrobras is the largest integrated energy firm in Brazil and one of the largest in Latin America. The company's activities include: exploration, exploitation and production of oil from reservoir wells, shale and other rocks. The company also engages in the refining, processing, trading and transportation of oil and oil products, natural gas and other fluid hydrocarbons, in addition to other energy-related activities.    

However, the Brazilian government, the company's majority shareholder, has a history of political interference in Petrobras' affairs. We do not expect this situation to change in the short term. This may impact the company's performance, since interests of the government might not coincide with that of minority shareholders.

As a result, Petrobras currently holds a Zacks Rank #3 (Hold), implying that it is expected to perform in line with the broader U.S. equity market over the next one to three months.

Meanwhile, one can look at better-ranked players in the energy sector such as Encana Corporation ECA. The Encana stock sports Zacks Rank #1 (Strong Buy).