Brazil's state-run energy giant
Petroleo Brasileiro S.A.
) has confirmed that it has pulled out of talks regarding the
sale of some of its assets in neighboring Argentina. In an
announcement, the company revealed that following a review, it
has declined all offers from prospective purchasers without
reaching any agreement.
Petrobras' operations in Argentina include a refinery in Bahia
Blanca, a number of gas pipelines, a fuel supply set-up, power
generation units, in addition to oil/gas exploration and
The proposed Argentine property disposal was part of the
company's efforts to generate around $10 billion from selling
assets to finance its huge investment requirements. Petrobras has
embarked on an ambitious capital program during the years 2013 to
2017, totaling a massive $236.7 billion.
Headquartered in Rio de Janeiro, Petrobras is the largest
integrated energy firm in Brazil and one of the largest in Latin
America. The company's activities include: the exploration,
exploitation and production of oil from reservoir wells, shale
and other rocks, and in the refining, processing, trade and
transport of oil and oil products, natural gas and other fluid
hydrocarbons, in addition to other energy-related activities.
We believe that continued demand growth in Brazil (expected to
outperform developed countries in the next few years), together
with all the new investments and acquisitions, will fuel
Petrobras' medium-term earnings outlook.
Additionally, we expect the company to benefit from its
expertise in deep-water operations, its huge recent discoveries
(which could double its resource base) and the growing domestic
refined products market. Further, with the Brazilian government
allowing Petrobras to raise fuel prices, investors can expect the
company to boost its margins and improve cash flows in the near
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However, we remain concerned by the company's declining
production trend. The huge investment requirements and the
possibility of heightened state interference add to the negative
This accounts for Petrobras' current 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
Newpark Resources Inc.
Exterran Partners L.P.
Dawson Geophysical Co.
) as good buying opportunities. These energy equipment service
providers - sporting a Zacks Rank #1 (Strong Buy) - have solid
secular growth stories with potential to rise significantly from