By : Franyi Sarmiento, Ph.D., Inspenet, July 20, 2022
Investors are turning to a new generation of drillers as an alternative to Petroleo Brasileiro SA (Petrobras), to take advantage of Brazil’s growing oil and gas production.
Gerval Investimentos, one of the majority shareholders of steelmaker Gerdau SA, is among the asset managers backing so-called junior producers. Last month, it doubled its stake in 3R Petroleum Oleo e Gas SA, a company with less than 60% of the market value of Petrobras, as the state oil giant is known, to around 12%. Others betting on the space include hedge funds Atalaya Capital, Vinland Capital, Mar Asset Management and XP Asset Management.
With crude prices still hovering around $100 a barrel after Russia’s invasion of Ukraine triggered sanctions and strangled global supplies, drillers like 3R Petroleum are offering a new way to bet on rising output from Brazil, a country is set to add more production through 2026 than any other outside of the US and OPEC.
Since 2019, Petrobras has sold more than 100 oil and gas fields to a dozen junior companies, some created specifically to buy those assets.
Oil investors see huge profit potential in junior companies, which promise to generate substantial increases in output from fields that Petrobras has long neglected. Brazil’s oil regulator ANP says production from those assets will rise 122% by 2025 after eight years of declines.
“Brazilian junior oil companies are good investment alternatives,” said Marcos Peixoto, portfolio manager at Sao Paulo-based XP Asset Management. “These companies are poised for significant production growth and the stocks look attractive even assuming a scenario of lower oil prices.”
Until 1997, when its official monopoly ended, Petrobras was the only producer of oil and gas in Brazil. Even today, the Brazilian Association of Independent Oil and Gas Producers has only 19 members, compared to around 9,000 independent drillers in the US.
But with money flowing in from investors, junior companies are expected to account for 8.8% of Brazil’s output by 2024, up from 7.2% today, according to consultancy Wood Mackenzie.
Petrobras has sold a large number of oil and gas fields to concentrate on the so-called pre-salt offshore region, which is home to the company’s largest and most profitable discoveries.
Loading...
