Tuesday, July 2, 2013

Investopedia: Petrobras Will Grow, But Will It Be Profitable Growth?

For the most part, investing in one of the international oil and gas majors these days is about a trade-off between a fairly predictable stream of dividends and share buybacks and sluggish production growth. Well-known companies like Exxon Mobil (NYSE:XOM), Chevron (NYSE:CVX), BP (NYSE:BP), and Royal Dutch Shell (NYSE:RDS.A) will, for the most part, consider themselves lucky if they grow production much more than 3% or 4% a year over the next decade.

On the flip side of that equation is Petrobras (NYSE:PBR). With its privileged access to Brazil's huge offshore pre-salt deposits, Petrobras could lead the world's major energy companies with 10% annual production growth over the next decade. But while Petrobras is highly likely to deliver high levels of production growth, Petrobras doesn't enjoy the same reputation as Exxon Mobil or Chevron in per-barrel profitability or returns on capital. What's more, the ongoing interference of the Brazilian government looms over the stock. All of that said, it looks like investors are too worried about the bad things that could happen relative to the good things that probably will happen – setting these shares up as a potentially significant bargain in the space.

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