When I last wrote about Petrobras (NYSE:PBR), I wondered whether this Brazilian oil company deserved such a discount compared to other major oil and gas producers. Since then, the gap has shrunk -- but not in a way most investors would have expected or wanted. Petrobras now trades at close to parity with the industry as a whole, mostly because oil companies as a whole have sold off more aggressively than Petrobras.

The things that Petrobras management can control still look pretty good. Production climbed about 4% in the first quarter, and net revenue climbed 25% -- helped along, of course, by higher year-over-year crude oil prices.

Margins were basically flat for Petrobras, and operating income climbed about 24%. Helped by some slower-growing finance expenses, net income grew 32% for the quarter.

With a nearly 4% increase in daily average production, Petrobras all but leads the industry in its ability to increase production. Better still, while many major oil companies are cagey about future production, Petrobras boldly stands by its plans to increase production to 3.4 million barrels of oil equivalent per day by 2010 -- a pace that would suggest annual improvements of more than 10% if you assume a smooth-line progression.

So what's the deal? Why isn't Petrobras a top-tier oil company in valuation and analyst sentiment?

First, the Brazilian government still owns a big chunk of Petrobras. Investors regard the company as a proxy for the entire Brazilian market and economy. It may not be logical or fair, but whenever investors are nervous about Brazil, they sell Petrobras, so the stock always carries a "Brazilian risk premium."

Second, the company's operating costs are rising significantly. Lifting costs were up 38% in Brazil in the quarter. Much of Petrobras' future oil will come from offshore operations that are almost always more expensive than dry-land drilling. That's good for a partner like Transocean (NYSE:RIG), but not so good for Petrobras.

Finally, many people just don't think that Petrobras will achieve its production targets. Although the company has good reserves and has recently made two solid discoveries of light crude, boosting production by more than 10% a year for five years will be tough.

I don't hate this stock by any means, but I liked it a lot more when there was a bigger gap between its valuation and the rest of the sector. Petrobras is a fine pick for those looking for a slightly spicier oil company, but I think I'd go with the likes of Eni (NYSE:E), Total (NYSE:TOT), or even PetroChina (NYSE:PTR) if I were to buy stock in an oil company today.

These Fool Takes on oil and gas are light, sweet, and never crude:

Fool contributor Stephen Simpson owns shares of PetroChina. The Fool has a disclosure policy.