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BG, GALP and Repsol shares jump on Brazil find

Analysis

Shares in Britain’s BG Group, Portugal’s Galp and Spain’s Repsol jumped on Thursday after Petrobras said the Iara oil field in Brazil could hold 3-4 billion barrels of recoverable reserves.

Gas producer BG owns 25% of the oil block in which Iara is situated. Oil refiner and emerging producer Galp owns a 10% stake and Petrobras owns the rest.

Galp, which many analysts see as undervalued compared to its European partners in Brazilian oilfields, soared over 10% at the open and trading was even briefly suspended. It later rolled back somewhat to trade 6.9% higher at €12.14.

BG’s shares rose 4.08% to trade at 1,098 pence at 0807 GMT. Shares in Repsol rose 1.5% to €19.19. The Spanish oil major has a stake in nearby blocks and analysts said the Iara find increases confidence about the area generally.

The DJ Stoxx European oil and gas sector index was up 1.88% after reversing early declines. “The rise is Galp’s reaction to the Iara potential as it increases stock valuation. We estimate that Iara has a direct impact of over €1.2 per Galp share,” said Pedro Morais, an analyst with Espirito Santo Research.

BPI bank said in a research note the Iara impact was “very positive” for Galp, adding that its valuation would increase by roughly 10% compared to current estimates. It said the expected quality of Iara reserve was higher than that of other subsalt blocks in the Campos basin, including the giant Tupi field, while production costs are expected to be lower.

The vast majority of banks and brokerages covering Galp have a ‘buy’ rating on the stock with an average upside of 30% in the next 12 months or so. The market is still eagerly awaiting well test results at Jupiter gas field, Caramba and Iracema light oil finds. “These results from the Iara well met our best expectations ... Brazil will become a very major production centre for our company and will sustain a major earnings contribution over at least three decades,” BG Group CEO Frank Chapman said in a statement.

The announcement, which appears to confirm the massive hydrocarbon potential of the subsalt layer off Brazil’s coast, is the second official recoverable reserve in the subsalt cluster after last November’s super giant Tupi announcement. (Reuters)

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