Petroleo Brasileiro Petrobras SA (PBR): Is Latin American Energy Worth the Risk?

Comparatively, YPF’s statistics are not very encouraging. There is hope for the future because the company should grow as long as improving operations is in line with national interests. Their ROI of 11.8% and ROA of 5.3% are both higher than Petrobras’s. Still, Exxon is run much more effectively with better a better ROI and ROA. Argentina needs more energy. For the time being YPF could prove to be a profitable investment as the government supports the firm’s increased capital expenditure and better utilization of assets.

A Safer Bet

Colombia’s Ecopetrol S.A. (ADR) (NYSE:EC) may not be well known, but it should not be ignored. It has interests in Colombia, the Gulf of Mexico, the Brazilian coast, and in Peru. The firm successfully produces a mix of heavy oil, light oil, and some natural gas. Ecopetrol expects 2015 upstream production to come in around 1000 kboed which is a strong increase from the 720,000 barrels of oil equivalent per day in 2012.  Upstream developments are also exciting, with the modernization of their Cartagena plant to boost refining capacity from 80,000 barrels per day to 165,000 barrels per day.

A quick look at the ROI of 23.8% and ROA of 15.2% show that Ecopetrol is run more effectively than YPF or Petrobas. Their gross margin of 22.3% is very strong and helps to explain the strong P/E ratio of 12.3. Colombia as a nation appears to be improving, with 2012 marking its fewest murders in 26 years. Out of all of the companies mentioned here, Ecopetrol appears to be the best investment with a high ROI and growth.

Conclusion

Investing in the emerging markets requires a delicate hand and an astute understanding of risk. Brazil’s insistence on using Petrobras to pay for public fuel subsidies is concerning. The Argentinian government can act in a very chaotic manner, but it looks like it will support YPF over the short term in order to reduce energy imports. Colombia’s Ecopetrol is the most attractive firm of the three featured here, with strong growth and an improving security situation.

The article Is Latin American Energy Worth the Risk? originally appeared on Fool.com and is written by Joshua Bondy.

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