Brazil's state-owned Petrobras (PBR) is certainly one of the riskiest energy companies around, even when it is a mammoth of a company. The reasons are mostly because it operates in a country where bureaucracy is the norm and the company is nationalized, which means, it tends to be more sluggish than a company that is owned by private corporations. With that in mind, it was announced recently that the National Security Agency (NSA) spied on Petrobras along with a few other companies. I shall discuss why the U.S. agency may be particularly interested in Petrobras, and what that means for investors.
Petrobras intimidates the U.S.
If the company were just another energy company operating in a bureaucratic left-leaning company, why would NSA be so interested in eavesdropping on conversations that took place within the company? The answer to this question is probably that the NSA finds Petrobras intimidating. The company is Brazil's largest energy company and it has significant interests in the U.S. Any negative development that occurs within Petrobras may affect the American economy directly or indirectly. As such conversations within a company are classified, the NSA may find such information valuable to predict economic upheavals that may have a negative impact on the American economy as well.
Dilma Roussef, Brazil's president, suggested that the motives may not be related to combating terrorism but related to economic interests. James Clapper, the American director of national intelligence, later confirmed that NSA collects information from companies like Petrobras in order to warn of major financial crises that could possibly occur in the future.
The prospect of Petrobras intimidating authorities at the highest echelons of the U.S. administration highlights the company's importance in an international setting. Though Petrobras appears sluggish when we look at its numbers, this is a company that has the backing and support of Brazil, one of the world's largest economies.
Spying on Petrobras was a blessing in disguise
Petrobras may have industry-standard encryption software and internal computer network in place, but that did not stop the NSA from eavesdropping. The company will now improve its hardware and software arsenal to avoid future hackings and security threats. That is a good thing because it is not always the NSA that spies or hacks into computers.
Terrorists, rogue companies and individuals with vested interests may break into a company's systems in order to steal strategic information regarding finances, oil and gas operations and confidential conversations with international governments. NSA's eavesdropping of internal communication within Petrobras certainly looks like a blessing in disguise. Brazil will now give extra importance to safeguard Petrobras' computer networks.
A realization that Petrobras is not infallible
State-run companies like Petrobras tend to work sluggishly as I mentioned earlier. They have the luxury of a socialist government which will come to their rescue if things turn out bad. The fact that the NSA not only spied on Petrobras but also on president Dilma Roussef is enough to startle the company's executives and take more proactive steps to not only safeguard information and strategic communication, but also drop their lax attitude towards working.
The company will probably now understand that even governments are not infallible, let alone Petrobras. With that in mid, Petrobras may seek to get its act together in Brazil and begin to hasten the speed of drilling and exploring within Brazil and beyond.
Other peers in Brazil
Brazil auctioned exploration rights in the Amazon basin in the middle of May 2013. The surprise winners were British Petroleum (BP) and Total SA (TOT). Total, which is based in France, won access to five exploration blacks. The blocks are located in northern Brazil, at the Foz do Amazonas basin. Total has risky business operations in Kurdistan and other volatile regions and working in Brazil will help it to negate other risky ventures.
Similarly, BP, which has often been in news for oil spills and resulting lawsuits, may find a reason to build its business reputation back when it begins to work with Total and Petrobras. BP also won access to an additional block in the same basin. Again, BP will work with Petrobras to explore and drill in that block. It helps for BP investors to know that the company does not have just dark days, but brighter days well.
With a market cap of $100 billion and an enterprise value of $182 billion, Petrobras is decidedly one of the largest oil companies in the world. Moreover, it had a revenue of $144 billion when the numbers were announced. It has a debt of $122 billion, which is a little too much. With a return on assets of 3.86% and a return on equity of 8%, the management at the company may need to become more effective. However, its profit margin at 9.28% and its operating margin at 14% are decent enough. The company also has a PEG ratio of 0.83, which suggests it is walking in undervalued territory.
Petrobras is certainly a risky stock to invest in but the fact that NSA spied on it makes it more worthwhile to pay attention to it. If the company wasn't important enough, NSA would not have spied on it. If you are willing to take risks, Petrobras may be a good option.