Petrobras' Search May Be a Boon for National Oilwell Varco

NEW YORK (TheStreet) -- In need of raising $15 billion due to rising costs associated with its offshore production projects in Brazil, Petroleo Brasileiro, also known as Petrobras (PBR), is reaching out for an investment partner with deep pockets.

According to a Sept. 10 article in the Wall Street Journal, PBR has asked Morgan Stanley ( MS) to help it find a partner that would be willing to fork out as much as $4 billion to help it invest in state-of-the-art technology used for finding oil and gas deep down in "Davey Jones's Locker."

According to an article on the company's interesting Web site on Sept. 6, "... Production started at the Chinook field, in the U.S. Gulf of Mexico,  which is connected to the FPSO BW Pioneer (a Floating, Production, Storage and Offloading platform).

"The Chinook #4 production well was drilled and completed in Lower Tertiary reservoirs, a promising offshore exploration frontier in the Gulf of Mexico, at a depth of about 8,000 meters.

"This FPSO, located approximately 250 kilometers off the coast of the State of Louisiana at a water depth of 2,500 meters, is also connected to the Cascade field which initiated production in February 2012."

That's what I call "really deep drilling" -- 2,500 meters equates to around 8,000 feet deep, and the technology needed to operate at those depths is still semi-experimental and extremely expensive. In fact, it has been the risks and costs involved in this process and getting the oil it produces all the way to shore (175 miles away) that has made some of Petrobras' drilling partners shy away.

PBR owns nearly 67% of Chinook, and French energy giant Total ( TOT) is its partner. The Chinook project is the first in U.S. waters to utilize a floating production, storage and unloading vessel that collects the oil at the surface where tankers can receive it.

The so-called FPSO (Floating, Production, Storage and Offloading) technology vessels remove the need for pipelines and thus lessen the risk of oil spills. The FPSO platform is portable, so it can be directed out of the path of hurricanes, another major plus.

As the PBR Web article referenced above puts it, "The BW Pioneer is the first FPSO to produce oil and gas in the U.S. portion of the Gulf of Mexico, and has the capacity to process 80 thousand barrels of oil and 500 thousand cubic meters of natural gas per day. Petrobras is the first company to develop an oil field in the Gulf of Mexico using a FPSO, a technology that has already been successfully and systematically employed in Brazil."

As the price chart below demonstrates, PBR shares hit its 52-week low and 3-year low price of $17.27-a-share on June 28th, 2012. On Friday, Sept. 14 shares hit an intraday high of $24.83, close to a 44% price rebound in less than three months! It closed on Monday, Sept. 17 at $23.85.

PBR Chart PBR data by YCharts

Investors appear to agree with many analysts who found PBR's share price undervalued below $18, but now they seem somewhat pricey and look poised for a pullback. On Monday they closed down 1.4% to $23.85. Patient investors may wait to see if shares retrace half their gain and consolidate around $19.40.

By offering to sell part of its production and mineral rights in these prolific energy fields, the company is inadvertently telling the energy and investment community that FPSO vessels and technology actually works.

According to the Journal article, that would be a nice positive for Houston-based National Oilwell Varco ( NOV).

NOV is a lucrative company that designs, constructs, manufactures and sells systems, components, and products for oil and gas drilling and production, as well as provides oilfield services and supplies, and supply chain integration services to the upstream oil and gas industry worldwide. The company recently hit its 52-week share price high above $87 a share after reporting a 26% year-over-year quarterly earnings gain as of June 30.

With a price-to-earnings-to-growth (PEG) ratio of only 0.86, and the potential for some big new orders (NOV has been buying companies that make FPSO parts), look for opportunities to snag some shares when they next visit the lower Bollinger Bands region near $75 . With shares currently around $83.80, you may not need to wait too long.

As of the time of publication the author had no position in any of the companies mentioned.

This article was written by an independent contributor, separate from TheStreet's regular news coverage.

Jim Cramer and Stephanie Link actively manage a real money portfolio for his charitable trust- enjoy advance notice of every trade, full access to the portfolio, and deep coverage of the latest economic events and market movements.

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