George Soros hedge fund disclosed it bought a $811 million stake in Petrobras. This makes the Petrobras holding 22% of the fund. Ken Heebner, head of the CGM Focus Fund (Nasdaq: CGMFX) purchased over two million shares of Petrobras this year for more than $100 million. Compared to the big boys Heebner is a pipsqueak. Fidelity holds 125 million shares, Marisco 54 million, Capital World 54 million, Wellington Mgmt 34 million and American Funds 25 million. You would think all of that institutional attention would have kept Petrobras from sliding -35% over the last three months. That would be especially true considering they just announced they made the biggest oil discovery in the last 30 years.
Zacks reiterated their buy rating on Petrobras because of its positive production growth profile and the improving outlook for its downstream business. Petrobras has announced several new refineries and partnerships with others. Petrobras will need the extra refining capacity when its new production from the Tupi field comes online over the next 8-10 years. The Tupi field is said to contain between 5-8 billion barrels but now scientists think it is only part of a much larger field that could contain over 60 billion barrels. The Brazilian government halted sales of leases in offshore blocks in the Tupi area in order to preserve the wealth for the Brazilian people. Petrobras has awarded contracts for drilling rigs in excess of $25 billion over the next four years with some contracts going out as far as 2016. Petrobras has contracted for 28 rigs to drill in the Tupi area. That is one third of the global deepwater fleet.
All this attention to Petrobras has the Brazilian government looking for new ways to capture the wealth. Petrobras is a national oil company owned by Brazil but it is also a public company. The Brazilian government is considering forming another national oil company that will only explore and produce in the Tupi area. It would not be a public company and therefore not need to worry about shareholders. This would be a detriment to Petrobras after finding and exploring the Tupi field on its own dime. It remains to be seen if the government will nationalize this field but given the nationalistic wave led by Hugo Chavez in Latin America it is always a worry. Until then the big players like Soros and Heebner keep pouring money into the stock of Petrobras. Even without Tupi Petrobras is one of the biggest and best run deep-water drillers on the planet. The Tupi find may turn into a national treasure but you can bet Petrobras will still get a major chunk for its efforts.
Until the Brazilian government decides what they are going to do everyone is taking some money off the table but still remaining heavily invested just in case Brazil does nothing and continues to let Petrobras run the show. (Nyse: PBR) has closed on support at $50 for two weeks with oil prices plunging. Several new analysts are starting to pound the table on PBR simply because the implied value either with or without Tupi is still a terrific bargain.