iShares Brazil ETF in Focus After Puzzling Petrobras Deal
Thursday, September 2nd, 2010ETF Database submits:
Despite relative strength in emerging markets, shares of Brazilian companies have lagged far behind their counterparts in South America as Chilean and Colombian index funds have both been crushing South America’s largest economy as of late. While this has helped to divert the focus away from Brazil for much of the summer, the coming fall season looks to put the BRIC member back into focus as one of the nation’s largest companies, Petrobras, signs a historic deal with the government that is likely to have far reaching implications for years to come.
Petrobras, the country’s main oil company and one of the largest publicly traded oil firms in the world, announced a massive deal with the Brazilian government in order to gain access to the vast oil deposits off of the country’s coast. The Brazilian government will charge the company $8.51 a barrel for access to the oil, in a deal that swaps $42.5 billion in stock for rights to acquire five billion barrels of oil tucked deep below Brazilian waters. While this deal will give the company access to an immense amount of oil, it is important to remember that this crude is locked away and is not easily accessible. That means that tapping into the reserves could be a costly process; some analysts believe that the price Petrobras paid is more than what the oil is actually worth, and that a more fair price would have been around the $6.50/bbl. mark–a difference of roughly $10 billion dollars.
