Here's one for the record books: Petrobras
For years now, there's been a lack of certainty surrounding exactly how Brazil would go about exploiting its deepwater oil resources, pegged at some 50 to 80 billion barrels. Petrobras, the national energy champion, is the obvious vehicle, but the capital required to execute large-scale deepwater development is staggering, even for the world's sixth-largest energy firm. Petrobras' five-year budget now stands at $224 billion.
Petrobras arguably stands in an enviable position relative to firms like ExxonMobil
Petrobras, meanwhile, has more opportunities than money -- hence the giant share sale. The government, in exchange for roughly $42.5 billion in stock, has granted the firm the right to develop five billion barrels of oil reserves. At $8.50 a barrel, the government actually got a pretty good deal. While you'll often see market transactions priced at $15 to $20 per barrel, this oil is going to be both technically challenging and just plain expensive to extract, given the infrastructure requirements.
That brings me to the biggest opportunity for investors. Petrobras is risking a tremendous amount of capital here while targeting a 14% rate of return. There's certainly good upside if you believe in a return to triple-digit oil prices, but I'd rather not count on that happening. Given the risk/reward, I'm much more drawn to companies that will benefit from the buildout by selling equipment or services to Petrobras. That would include rig builder National Oilwell Varco
National Oilwell Varco is a Motley Fool Stock Advisor selection. Chevron and Petrobras are Motley Fool Income Investor recommendations. The Fool owns shares of ExxonMobil. Try any of our Foolish newsletter services free for 30 days.
Fool contributor Toby Shute doesn't have a position in any company mentioned. Check out his CAPS profileor follow his articles using Twitteror RSS. True to its name, The Motley Fool is made up of a motley assortment of writers and analysts, each with a unique perspective; sometimes we agree, sometimes we disagree, but we all believe in the power of learning from each other through our Foolish community. The Motley Fool has a disclosure policy.