Petroleo Brasileiro S.A.
) entered into an agreement with oil equipment manufacturer Sete
Per the deal, the companies will be involved with the construction
of six new semi-submersible drilling rigs in Brazil. These rigs
form a part of the set of 21 rigs that was awarded to Petrobras by
Sete Brasil in an agreement signed in early February.
The rigs - slated to be delivered in 2016 - have a drilling
capacity of up to 32,808.4 feet, and are able to operate in water
depth of 9,842.5 feet. The rigs will be used for exploration
activities in the pre-salt layer of Santos Basin.
Petrobras will construct the rigs, using local content of between
55% and 65%, at the Brasfels Shipyard in Angra dos Reis.
Following the completion of the construction, the drillships will
be chartered to Petrobras for a period of 15 years. Petroserv will
operate three rigs, while Queiroz Galvao Oleo e Gas and Odebrecht
Óleo & Gás will have two and one rigs, respectively.
Headquartered in Rio de Janeiro, Petrobras is the largest
integrated energy firm in Brazil, dominating the country's energy
sector. The company produces substantially all of South American
country's crude oil and natural gas, and accounts for almost all of
the country's refining capacity.
Petrobras is also settling up Brazil's natural gas infrastructure
and enjoys strong market share positions in petroleum product and
liquefied petroleum gas marketing businesses. While the company no
longer operates as a legal monopoly, the size and reach of its
operations make it a quasi-monopoly in Brazil.
However, we remain on the sidelines given the company's exposure to
the volatile oil and gas fundamentals, which are expected to impact
profitability. Moreover, Petrobras' huge investment requirements,
operational hindrances and international business risks add to our
We maintain a long-term Neutral recommendation on Petrobras. The
stock, which operates with other global energy players such as
PetroChina Co. Ltd.
Royal Dutch Shell plc
), currently, retains a Zacks #3 Rank that translates into a
short-term Hold rating.
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