PBR.A vs. PBR (Petrobras)

Very interesting piece. I have PBR and realize now that PBRA is probably a better choice. So noted! Thanks.

Very interesting, thanks.
When do you guys think will be a good time to get back into oil?

Probably going to to well during Gustav episode as it's not opeating in the Gulf and won't lose production to evacuation. Domestic producers have started evacuation of gulf facilities.

Oil, PBR and PBR.A that is...

Guliamo,

I think only a few well-placed sheiks may have any real idea as to when oil will flirt with its recent highs again. Short-term, anyone's guess, but I'm guessing demand for crude isn't going away anytime soon. A few blips possible in the short term, given the potential for a global recession, but the troublemakers in Russia, Venezuela, and Iran continue to scheme...

But to put oil's recent correction into perspective, keep in mind that this recent -21% pullback doesn't even rank among the top three consolidations since it began its power-move back in 2002 (-31% in 2003, -28% in 2005, and -25% in 2006). This is just a normal rest in a continuing bull market for oil, in my view.

And on a follow- up note to my previous PBR entry, you'll be interested to know that even BEFORE this price plunge, George Soros purchased an $811 million stake in PBR in Q2, which makes the stock the largest holding (22%) of American ADRs held by Soros Fund Management, LLC.

Good information. I have read that Brazil is nowhere near as squeamish about developing it's large off shore resources so this is not likely to get held up by politics. Are any of the US/ major companies going to be consulting in the exploration and development phase or is this all a national enterprise? Also, the A shares are listed under PBA/A on Scottrade.

From what I know, the Tupi basin find in Brazil is PBR's baby. After all, the company is considered THE premier global deep-water driller, with expertise to sell. However, there may be a solid piggy-back play in Transocean Inc. (RIG), operator of the world's largest fleet of drilling rigs ...

Bloomberg has reported that PBR has already leased 80% of the deep-water rigs, majority from RIG, and is after more. In fact, Petrobras is currently trying to extend its leases with Transocean three years beyond the current exploration dates.

RIG has a $30 billion backlog of rigs and sports reasonable multiple (under 10), and looks reasonable to me at these prices.

Interesting about RIG.. I have been considering it for a while and can't help compare it to Atwood oceanic (ATW) - seems like both companies have great stats and their charts seem to be moving in tandem for the past 2 years.

RIG has a lower P/E of 8.3 but Revenue is growing faster than earnings.. telling me this is a less than perfectly run company.
ATW's P/E is higher at 13, but earnings are growing twice as fast as revenue..

So this brings up an interesting dilema:
Since ATW is a smaller cap (2 billion compared with rig's 40) and seems to be more effeciantly run and both companies react similarly to the market, I'm not sure where the smart money needs to go? maybe a 50-50 split?
What do you guys think?

Hey guliamo...thanks for inviting the comment. I like the sector and I think the "macro" makes sense. ATW seems more volitile...down 35% from their high whereas RIG is down 21%. If dosman is right and RIG has an inside position on the buisness off Brazil then that would also be in their favor. I agree with you that both react similarly to the same types of market news so a split would make some sense. On the other hand I guess my tendency would be to go for the one that has suffered in this recent downturn more...ATW.

I guess what i'm wondering is do small caps have the advantage as far as long term growth? Is there a glass cealing at above 30 Billion that won't allow a company to grow as fast.
Maybe it's psychological, but it's harder for me to see RIG going to 80 Billion in value, where as if ATW were to double it's value I wouldn't see it as such a surprise..
Do you think there is anything technical / finacial to back up this hunch?
I didn't think of looking at how loew they are compared to 52 week high.
Thanks for that Contrary.

Adding to that thought..
Wouldn't RIG be smart to aquire ATW?

guliamo...most of what we are talking about is "above my pay grade". I invest and read a lot...but I am an Up-All-Night ER doc and am pretty new to technical investing. that is why i try and stick to macro trends that i can see, touch, and understand. that said, you are right. there are big problems with efficiency as companies grow. there are economies of scale and dis-economies of scale as well. which may be why ATW can seem to operate more efficiently than RIG. Should RIG aquire ATW? Again...issues like corporate culture...compatibility of operations...regional overlap...and I am sure a bunch of others as well, would make this reasonable or no. So what i do know is that despite Obama's irresponsible pledge to get us off foriegn oil in ten years...the oil and gas companies plus the exploration and support firms will be making lots of $$ for decades to come. In 2000 America got 3% of its total energy from renewables (wind/solar/biomass/geothermal excluding hydro and nuclear). In 2007 that number increased to 4%. We still get 85% of our energy from fossil fuels (coal, oil, nat. gas). I don't care what the D's promise...it ain't goin to happen. That is why I am putting new money into this sector after the shake down of the last month.

Correction on my post above: it is PBR/A

Transocean and Atwood both look to be well-managed companies. I have no position in either, but incline towards RIG as being a bit cheaper--at least, at a cursory glance.

All other things being equal, I prefer to see a company grow organically than to pay a premium to market price to acquire a competitor and then try to absorb the other company. Maybe this is experiential bias speaking: I have a few shares of Hercules Offshore (HERO) which bought its much larger competitor, Todco some time ago, and has been struggling with the integration ever since (fortunately most of my money went into Dawson Geophysical (DWSN) and class A shares of Petrobras).

I've recently started a small position in Bolt Technologies (BOLT), which manufactures remote geosensing equipment, as a "picks and shovels" play on offshore exploration. Excellent ROE and top line growth, and a low P/E/ multiple.

Brazil isn't anywhere near gustav and won't have to shut down for the storm. If oil goes up, Petrobras will do better, due to the larger relative production during the storm. Technically the two stocks look the same. Position neutral, which ever way they start out is probably the way they'll keep going.