Petroleo Brasileiro SA (NYSE: PBR), known as Petrobras, announced a discovery in the Gulf of Mexico today. The diversified oil and gas company confirmed the discovery of hydrocarbons in ultra-deep waters in the Central Gulf of Mexico. The Stones #3 well, located in Block WR 508, found oil in multiple sandy lower tertiary reservoirs and is 25% owned by Petrobras. Future drilling and assessment activities are planned to define size and viability.

These results confirm the potential of significant oil reserves in these reservoir in the Gulf of Mexico, where Petrobras operates the Cascade and Chinook fields which at the present are in the production development and facility construction phase. Petrobras will be the pioneer company, both in ultra-deep waters in Lower Tertiary reservoirs and in using an FPSO type platform in the region, the production of which is slated to go online in June 2010.

In this same area, Petrobras also holds 25% stakes in the Saint Malo field. This field is operated by Chevron and is in the assessment and extension exploratory drilling phase. Also, studies are being done to select the production development project for Saint Malo. These discoveries help the company diversify its holdings and enhances the value of its Exploration and Production project portfolio in deep waters in the Gulf of Mexico.

Petrobras also announced its first quarter results today, which came in ahead of expectations. Consolidated net income rose 68% year-on-year thanks to a decline in operating expenses and the reduced appreciation of the Brazilian Real currency. The increase in oil and gas production and the upturn in oil and oil product prices also contributed to the improved performance. EBITDA climbed 26% year-on-year as production edged up 2%.

Meanwhile, Petrobras also saw its market cap increase 69% year-on-year due to oil and gas discoveries in the pre-salt layer, the new exploratory frontier, and potential production growth. Ironically, one of its biggest problems was obtaining offshore support vessels from companies like Transocean Inc. (NYSE: RIG), which have been booked for years in advance following the rapid run-up in oil prices in recent months - a bullish sign for these companies.

Interestingly, Petrobras also saw a significant decline in its US volume as the economic crisis worsens. This caused a sharp drop of 14.96% in its international sales volume, but was also helped down by the sale of its Bolivian refineries. This means that domestic refiners in the US are likely to continue to see problems in the near future. Luckily, Petrobras was able to offset this with strong growth in domestic sales volume.

Lehman Brothers analyst, Paul Cheng, also raised his price target for Petrobras to $62 per share. He maintains his "equal weight" rating on the company, saying also that he expencts the first quarter to come in at $1.02 and full year 2008 to come in at $5.10.