Weekly Oil & Gas Notes: Chevron and Petrobras Announce Deepwater Discoveries

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Oil and gas stocks slightly strengthened last week as benchmark crude oil prices remained largely flat after falling sharply by more than 25% since hitting a short-term peak of $115/barrel in June. The growth in demand for crude oil has been slowing down recently, due to moderating economic growth in emerging markets such as China and India and signs of slower economic recovery in the Euro-zone. Recently, the International Energy Agency (IEA) in its latest monthly report cut its forecast for the growth in global oil demand this year. It now expects demand, which stood at around 90.5 million barrels per day last year, to increase by just around 0.7 million barrels per day this year. The price of front-month Brent crude oil futures contract on the ICE remained largely flat at around $86/barrel last week and is currently trading at $85.25/barrel. The NYSE Arca Oil & Gas Index (^XOI) grew by around 3% last week.

Below, we provide an update on some of the key events that occurred last week related to the oil and gas companies we cover.

Chevron’s New Discovery In The U.S. Gulf of Mexico

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Chevron (NYSE:CVX) recently announced the discovery of oil at a key deepwater exploration site in the U.S. Gulf of Mexico. The discovery, known as Guadalupe, builds on the company’s strong position in the deepwater Gulf of Mexico, which is a key area of focus for the company. It is located in the Keathley Canyon region of the Gulf of Mexico about 300 miles southwest of New Orleans in nearly 4,000 feet of water. Chevron’s total deepwater production stood around 350 thousand barrels of oil equivalent per day (MBOED) in 2013. Hydrocarbons produced from the deepwater fields in the Gulf of Mexico made up more than 60% of that. The company expects to boost its overall hydrocarbon production from deepwater reserves by ~30% by 2017. Chevron is the operator of the Guadalupe prospect with a 42.5% working interest. Other stakeholders in the project include BP Plc. (NYSE:BP) and Venari Resources that hold 42.5% and 15% working interest, respectively. [1]

  • We currently have a $126/share price estimate for Chevron, which is around 10% above its current market price. The company’s share price increased by around 3.7% last week.
  • We currently estimate Chevron’s 2014 Non-GAAP diluted EPS to be at $11.02, compared to the consensus estimate of $10.35 reported by Reuters.

See Our Complete Analysis For Chevron

Petrobras’ New Discovery In The Espirito Santo Basin

Petrobras (NYSE:PBR) recently announced that it discovered a new gas and condensate accumulation in the Espirito Santo Basin post-salt cluster, off the coast of Espirito Santo state. The company struck hydrocarbons at a depth of about 3,055 meters while drilling the well “Lontra” around 81 km off the coast of Espirito Santo. Petrobras is the operator of the well with a 100% stake in the Golfinho production concession. [2] Despite the new hydrocarbons discovery, Petrobras’ share price declined sharply last week, primarily due to concerns over the incumbent head of the state returning to power in Brazil. Latest poll results signalled that the country’s incumbent President, Dilma Rousseff, who is widely seen as a leftist, edged ahead of the centrist candidate and her key opponent, Aecio Neves, who is an economist and believes in the free-market philosophy. [3]

  • We currently have a $21/share price estimate for Petrobras, which is around 60% above its current market price. The company’s share price decreased by around 13% last week.
  • We currently estimate Petrobras’ 2014 diluted EPS to be at $2.1, compared to the consensus estimate of $1.67 reported by Reuters.

See Our Complete Analysis For Petroleo Brasileiro Petrobras

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Notes:
  1. Chevron Announces Oil Discovery In Deepwater U.S. Gulf of Mexico, chevron.com []
  2. New discovery in Espírito Santo Basin deep waters, investidorpetrobras.com []
  3. Brazil Election: Dilma Rousseff Favorite According To Polls, theguardian.com []