Brazil, the next big oil giant?

Jeff Tyler Sep 24, 2010

Brazil, the next big oil giant?

Jeff Tyler Sep 24, 2010


Bob Moon: Call it a stock offering on steroids. An oil company in Brazil has raised more than $70 billion on the market. That is a new world record! The money will go toward developing Brazil’s petro industry, which involves lots of deep-water drilling. That’s right. You might ask, “Don’t investors remember a company called BP and their gaffe in the deep-water Gulf?”

Here’s Marketplace’s Jeff Tyler.

Jeff Tyler: Investors don’t believe the oil spill in the Gulf will affect drilling in other parts of the world. So says Michael Lynch, president of the consulting firm Strategic Energy & Economic Research.

Michael Lynch: Most people are treating it as a one-off thing that can be blamed specifically on BP, rather than a question of deep-water drilling being beyond our ability to control.

Why are investors betting specifically on the Brazilian company known as Petrobras?

Lynch: It’s the Willie Sutton rule. This is where the oil is.

A few years ago, Brazil discovered off its coast one of the world’s largest oil deposits.

Allen Good: The primary attraction of Petrobras is their growth potential.

That’s Allen Good, equity analyst with Morningstar. He says Petrobras is expected to double production in the next 10 years.

Good: So that certainly puts them head and shoulders above their competitors.

A majority of the company will continue to be owned by the government of Brazil. Good says that adds a level of risk, since politics could influence business decisions. Brazil’s president has said he’d like to use the country’s oil wealth to help lift almost 200 million people out of poverty.

Good: It could be a case where Petrobras is guided to invest in projects that may not deliver higher returns for the purpose of simply stimulating the economy or providing jobs.

In the short-term, the money raised on the market will fund investment in the country’s oil industry. Within 10 years, Brazil is expected to be one of the top five oil producers in the world.

I’m Jeff Tyler for Marketplace.

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