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7/25/08

Petrobras (PBR): today's news smacks of desperation


With the share price dropping...and dropping....and dropping, the rabid retail longs who savaged anyone who dared to talk a little common sense about PBR are now conspicuous by their absence. But it now looks as though Petrobras itself is sweating on its PPS, cos Bloomie today has them talking up future production at its Tupi offshore field (here's the bloomberg link).

PBR pum...OOPS!! SORRY!!.... promotes the fact that Tupi will be good for a million barrels a day, and starts delivering in 2010. What gets ...errrm....'lost in translation' is that the first spudding happens in 2010, and it'll take a whole lot longer than 2 years to get 1mbbl/d flowing from the area...like years longer. And then there's the tiny little fact that PBR has already said Tupi is mostly natgas....I can only suppose they were talking about barrel equivalents and that got 'lost in translation', too. Ahem.

And then there's the whole concept of how they're going to pay for the development. And this is when the investor should be reminded (once again) that Petrobras is state controlled. Y'know, one of those nationalized companies that the free market hates right up until the moment it suits them to be totally hypocritical "four legs good, two legs better" about it. And what nationalized companies do is put the country before the bottom line. So when it comes to capex needs, expect them to suck net earnings to nothing while the expansion phase is on. This is most definitely not Exxon Mobil, dear reader.

Maybe rampant longs have learned their lesson over the last few weeks. Maybe not. But once again, I advise caution with PBR as an investment, and laugh my socks off at the fools from the very large WallSt houses who have showed themselves as total LatAm greenhorns with bandwagon buy recos at the top of the stock. Just as one example, JP Morgan upgraded PBR to overweight on June 27th with the stock at $69. Here we are less than a month later at $52. Nuff said.

A final thought; after all the hype we've had to swallow from the stuffed suits, it's interesting to compre the PBR 1 year chart above to this one, showing WTI crude spot for the same period. Y'know, in the end, PBR is just another oil stock. Tupi? Carioca? Brazil? Investment grade? Total BS! It's just another oil stock...and a nationalized one, at that.

Don't say i didn't warn you dudes...........