Back to the Future at Petrobras

At long last, it seems like some of the major oil companies in emerging markets are getting their due. Oh, it's not like PetroChina (NYSE: PTR  ) , Lukoil, or Petrobras (NYSE: PBR  ) are valued at parity with the likes of ExxonMobil (NYSE: XOM  ) or Chevron (NYSE: CVX  ) , but a nice stretch of performance has at least closed the gap a bit.

As for Petrobras, the story presently seems to be about rising costs today and robust expectations for tomorrow. Of course, present-day performance wasn't terrible -- even if it was a bit lower than analysts had forecast. Revenue in this go-around climbed a bit more than 17%, operating income rose 19%, EBITDA rose 16%, and net income was reported up 41%.

Looking at some of the details of the quarter, energy production was flat, as lower international results offset some modest growth in domestic production. Extraction costs continue to rise at a double-digit rate, though refining cost growth was more moderate (up about 6%).

For some time now, Petrobras' management has talked about rather aggressive growth goals over the next ten years or so. The problem with that is the "aggressive" part, and the possibility that it may be setting investors up for disappointment down the road. Rising costs are a problem -- companies like Transocean (NYSE: RIG  ) continue to report rising rates, and while I think new capacity will ease some of the pressure in the jackup market in a year or two, relief in the deeper waters may be a long time coming.

In addition to a robust cost environment, it's impossible to ignore that Petrobras' operating environment has also changed. Bolivia may have thus far failed in its attempts to fully nationalize its oil and gas sector, but I'd argue that even if they have to pull back from that initial plan, they're hardly a good or reliable partner for the future. That will make it harder for Petrobras to achieve its international production growth goals -- there aren't a lot of high-potential properties just lying around out there on the cheap.

Even when you factor in a discount to the share price for those risks, I find it difficult to call Petrobras overvalued. In fact, it still looks like a relatively attractive major oil investment option for those who'd like to couple some exposure to the energy markets with exposure to international companies. By the same token, investors shouldn't forget that this is an oil company -- if the price of crude starts to slide, this stock may well go along for part of the ride.

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Fool contributorStephen Simpsonowns shares of PetroChina, but has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).

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