Even in the days of frequent bumper oil finds, billion-barrel discoveries were something special. Today, in a world without cheap and plentiful oil, such a find sends markets into excited spasms. Witness the reaction to Thursday’s announcement from Petrobras, the Brazilian oil major, that it is poised to recover as much as 8bn barrels of light crude from Tupi, an ultra-deep field off Rio de Janeiro. That is double initial estimates and confirms Tupi as the world’s largest new oil source since Kashagan in Kazakhstan in 2000.

Little wonder shares surged. BG, with a 25 per cent interest in the field, has put on about 14 per cent since the announcement. Although the first oil may not flow from Tupi for at least another five years, the find – one of five concessions BG has in the area – could boost its reserves by two-fifths. Galp, a Portuguese explorer with a small stake, has shot up 41 per cent on a reassessment of its takeover allure. Petrobras, with the remaining 65 per cent, has gained 20 per cent.

Its valuation looks stretched, however. The highest operating costs per barrel in the industry – more than two and a half times the average – give Petrobras low free cash flow yields and sub-par earnings growth. There are suggestions of acquisition indiscipline too: in August, bidding for a domestic petrochemicals company, its management put in an uncontested offer equivalent to a 90 per cent premium to the market capitalisation. An appreciating currency and the disproportionate influence of the state – which holds 32 per cent of Petrobras’s total capital but 56 per cent of the votes – are further worries.

Fully exploiting the field will test Petrobras engineers to the limit: Tupi lies under seven kilometres of water, sand, rock and salt. Still, all this is not enough to knock the company’s premium to peers in developed markets. While many emerging market valuations are sustained by the promise of jam tomorrow, at least Petrobras is dishing it up today.

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