2. Does this method of using the sovereign spread also compensate for currency risk? Petrobrs stands out in terms of deepwater technol- ogy... but currently lags in the area of cost of capital. We believe that in the long term, if Petrobrs is to become a competitive player in what looks to be the future in underwater fuel exploration, it would be headed in the right direction by expanding internationally, securing its presence in the Golden Triangle, and lowering its cost of capital. WACC reduction could be immediate. If Petrobrs were to acquire one of the North American indepen- dents-which we estimate on average have a WACC in the range of 6% to 8%-it could raise debt at the acquired company and subsequently lower its WACC in the short term. Petrobrs could even cancel some of its own debt and/or issue new debt through the newly acquired entity. We've seen other savvy Latin compa- nies (ie., Cemex via its Spanish subsidiary Valenciana) do this successfully in the past. -"Foreign Expansion Makes Sense at the Right Price," Morgan Stanley Equity Research, January 18, 2002, p. 4