Tickers in this Article: PBR, CVX, COP, PTR, HAL, RIG, CAM
These are interesting times for current and potential investors in Brazilian energy giant Petrobras (NYSE:PBR). Everybody concedes that the massive offshore finds that BG Group announced in 2006 (the Tupi field) and Petrobras announced in 2008 (the Jupiter field) will be transformative for Petrobras and Brazil as a whole. Since then, however, there has been a fair bit of confusion over how Brazil would manage these finds and what exactly Petrobras' role would be.

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Even with most of those questions answered, however, there is still a pause surrounding Petrobras. It is clear that this giant company is going to have to launch significant financing efforts, including a share offering, and many potential investors are waiting on the sidelines until they get better clarity about the size and timing of the deal.

The Quarter That Was
Petrobras had a messy second quarter, made all the less clear by differences in accounting treatments. Production was up 3% over last year, and net operating revenue increased by 20%. Gross profits dropped 3%, however, and operating income fell 11% from last year's level. Earnings per share were up 8%, and managed to beat expectations.

The trouble is in the quality of that earnings beat. The company's refining and distribution businesses were soft, overall profitability was not great, and the "beat" was mostly a product of non-operating financial items. Among the culprits in the performance were substantially higher lifting costs - up 26% for the domestic business alone. (For background reading, check out our Oil And Gas Industry Primer.)

The Road Ahead
To a large extent, the expected reaction to almost any bad news in the short run will be "who cares?" The enormous size of the Tupi and Jupiter fields are going to dominate investors' thoughts for years to come, as is the proposed Petrobras capital spending budget of roughly $224 billion over the next five years. Not all of that is going towards these offshore fields; roughly half is for exploration and production, and nearly one-third is for downstream offerings.

Likewise, the prospects of doing business in Brazil's waters is going to be a major factor for services and equipment companies like Halliburton (NYSE:HAL), Schlumberger (NYSE: SLB), Transocean (NYSE:RIG) and Cameron (NYSE:CAM). Even if some of these companies lose out on bids to develop the Brazilian fields, Brazil is going to consume a lot of equipment and personnel in the coming years and that should support strong pricing across the board.

The Bottom Line
Petrobras has been a popular overseas oil name for years, and the offshore discoveries certainly did no harm to its attractiveness. Although there are still some issues to resolve, including the transference of rights to about 5 billion barrels of oil in exchange for additional shares of the company, it is clear that Brazil's production profile is going to be dramatically different in the coming years.

Even if Petrobras looks somewhat expensive relative to other oil giants like Chevron (NYSE:CVX), ConocoPhillips (NYSE:COP) or Petrochina (NYSE:PTR), it has a growth outlook that seems unmatched in the major E&P category. There are still risks here - the ultimate size (and dilution) of the equity offering is unknown and there are no guarantees that the Brazilian government will not interfere further. All of that being said, investors looking for a large-cap energy stock should certainly take a very close look at Petrobras, even if they decide to wait for a little more clarity on the company's financing plans. (For more, see Unearth Profits In Oil Exploration And Production.)

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