Brazil's state-run energy giant
Petroleo Brasileiro S.A.
) awarded a $2.7 billion contract to Sapura Nevegacao Maritima, a
joint venture between Norwegian oilfield service firm
) and Malaysia-based SapuraKencana.
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Per the deal, the joint venture will build and charter three
flexible deep water pipe laying support vessels and operate those
for 8 years. Delivery is expected by the second quarter of 2016.
Petrobras can extend the deal by additional 8 years.
Petrobras' decision to construct vessels outside Brazil is in
sync with its initiative of cutting costs by $15.4 billion over
five years. Any increase in costs will adversely affect
Petrobras' ambitious investment program for the 2013-2017 period,
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 exploration,
exploitation and production of oil from reservoir wells, shale
and other rocks. Petrobras is also engaged in refining,
processing, trade and transport of oil and oil products, natural
gas and other fluid hydrocarbons, in addition to other
Petrobras produces substantially all of Brazil's crude oil and
natural gas and accounts for almost all of the country's refining
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 to medium term. This may impact the company's
performance, since interests of the government might not coincide
with those of minority shareholders.
Petrobras currently retains a Zacks Rank #3 (Hold), implying that
it is expected to perform in line with the broader U.S. equity
market over the next 1 to 3 months.
Meanwhile, one can look at
Ferrellgas Partners LP
Summit Midstream Partners LP
) as good buying options. These energy stocks - sporting a Zacks
Rank #1 (Strong Buy) - have solid secular growth stories with
potential to rise significantly from the current levels.