Petrobras Shares Volatile on $225 Billion Development Plan (PBR)

The Brazilian oil giant said today that its northeast Carioca field would be shut in for 2 months as the company repairs a riser connecting a well to production vessel. And if that’s not enough, the company is having supply chain problems which led to a production decline in 2011. Petrobras doesn’t expect to sort out those problems until next year.

The good news is that the company has discovered yet another new field north of the Campos and Santos basins. No details yet, but the company is very pleased with what it’s seen so far.

Petrobras has also leased 26 new drill rigs as part of its $225 billion capital spending program to develop the country’s massive offshore fields. The rigs, 21 from a Brazilian firm and 5 from a Cyprus-based maker, are scheduled for delivery beginning in 2015. The total tab for the lease is $76.3 billion, all of which will be built in Brazilian shipyards.

Over the past 5 years, the company’s shares have risen to more than $72 and fallen to below $20. All the good news about its discoveries and reserves gets priced in right away, and then the shares just drift downward until the next bit of good news hits the wires. Shares are up 19% since the beginning of the year, but down nearly -18% in the past 12 months.

And it’s pretty unlikely that the shares will stabilize anytime soon either. The massive scale of Petrobras’s planned growth prompts a similarly massive response whenever there’s a glitch.

Today, Petrobras is trading down about -8% at $29.56 in a 52-week range of $20.76-$42.75. The company’s consensus price target is $38, yielding a potential upside of 29%. There’s no question that the upside is there — the only question is when the company will realize it.

Paul Ausick