PBR - Petroleo Brasileiro

Petrobras current earnings basically weaker than last year and in line with expectations - no big surprises here.

Petroleo Brasileiro SA, posted lower-than-expected profit in the third quarter after earnings at three of its five operating units declined. Net income rose to 8.57 billion reais ($5 billion), or 97 centavos a share, from 7.94 billion reais, or 90 centavos, in the year-earlier period.. Sales gained 14 percent to 54.7 billion reais. Profit trailed analyst estimates after the state-controlled company expanded output at a slower-than-expected pace and results from its supply, distribution, and gas & energy units declined. Still, earnings per share and sales beat estimates.

Petrobras is investing $224 billion in the five years through 2014 to boost output and expand its refining capacity. The company will revise its investment plan next year to include the development of new oil reserves it bought from the government as part of its share sale earlier this year and said it received on average $72.10 a barrel for its oil in Brazil, compared with $64 a barrel a year earlier.

Oil futures in New York averaged 12 percent higher in the third quarter compared with a year earlier. Crude oil for December delivery was unchanged yesterday at $87.81 per barrel on the New York Mercantile Exchange.

Brazil’s oil regulator, the ANP, has stated that the Libra prospect in the pre-salt layer of the Santos
Basin could hold up to 15 billion barrels of recoverable reserves. That significant amount of 15 billion barrels equals nearly twice the size of the Tupi field nearby, which is owned by the state-controlled company, Petroleo Brasileiro SA.

This marks the largest discovery in the Americas since Mexico discovered Catarell in 1976.

According to the ANP, the national petroleum regulator, the oil was discovered underneath a layer of salt at the first exploration well at the Brazilian government-owned field. Brazil drilled 5,410 meters deep at the well and anticipates reaching up to 6,500 by the end of this year.

Both the Libra and Tupi fields are located in the Santos Basin of Brazil, in an area called the “pre-salt region”. It extends 800 kilometers off the coast and oil deposits exist below a layer of salt sitting as deep as 3,000 meters below the ocean surface and an additional 5,000 meters blow the seabed.

Petrobras will be responsible for operating all of the new concessions in the pre-salt under proposed regulation. Petrobras raised $70 billion last month.

Shares of PBR have recovered over the last week as the Brazilian state oil company Petrobras started production at the Tupi pilot project in the offshore Santos Basin.

The pre-salt layer field, Tupi, is Brazil’s largest field with an estimated 5-8 billion barrels of reserves. Petrobras is the operator of Block BM-S-11 with a 65% stake. Its partners are BG Group with 25% and Galp Energia with 10%. The pre-salt field has been producing some oil since May last year under an extended well test.

Brazil’s production outlook continues to improve as the reserves become real production. The country has successfully grwon its renewable fuel sources over the last few decades. This oil field puts Brazil into an oil exporting mode, at a time when other countries such as Mexico are seeing real production declines from their major fields.

Eventually, Brazil could become one of the world’s ten largest oil producers.