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Gold/Mining/Energy : ENERGY EXPLORATION & PRODUCTION
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To: Dennis Roth who wrote (105)6/14/2008 7:24:01 AM
From: Dennis Roth  Read Replies (2) of 111
 
Petroleo Brasileiro S.A. (ADR) (PBR): Guara success provides further pre-salt encouragement - Goldman Sachs - June 13, 2008 Brazil

News
Petrobras announced on June 12 that it had discovered oil on the eastern portion of Block BM-S-9 (Carioca) at the Guara prospect.

Analysis
Petrobras is now 7 for 7 in the core Santos Basin pre-salt trend. One of the major questions is whether this area represents one super giant field (many, many 10s of billions of recoverable oil resource) or a series of separate but still large/giant fields (still potentially 10+ billions of barrels of recoverable oil resource). Each incremental discovery of oil provides directional confidence toward the super-giant possibility, though we stress it is still early going and exploration by its very nature contains considerable risk. At current valuations, we believe either scenario--"super giant" or "separate but still large fields"--is positive for Petrobras shares.

Implications
We reiterate our Buy rating on Petrobras and $84, 12-month target-price, which is based on asset value, P/E and cash flow valuation analyses. Key risks include sustained lower oil prices, meaningful depreciation of the real, and future disappointment in the pre-salt trend. Continued success in the pre-salt trend also bodes well for shares of Hess (Conviction Buy) and ExxonMobil (Neutral) within our coverage universe.
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