Petrobras is a world-class oil company. But even after last year's recapitalization raised $70 billion in fresh funds, soaring development costs are eating the stock alive. PBR ( quote ) has fallen all the way back to November levels, even though Brent crude has averaged over $115 a barrel this year. Take a look at its chart: This is a high beta oil play when you can feel confident that the company is not being bilked by the Brazilian government, which controls the board of directors and ultimately corporate policy. In the past, PBR has been forced to dilute its profits by funding plenty of projects that serve politicians and bureaucrats, but not shareholders. Why else would an oil company need to build its own tankers? We can see this reflected in PBR's traditionally massive capital expenditure numbers. But now that CEO Jose Sergio Gabrielli says a new five-year development plan is almost ready to show the market, there is hope that the capex will finally get reined back in. Reducing that number is key to moving the stock. In the meantime, it looks like PBR is tradeworthy at these level -- especially given the stock's decline over a period when the value of its massive oil reserves has been on the rise.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.