Seeking Alpha

Petrobras' (PBR) first quarterly loss in 13 years has more to do with the real's depreciation...

Petrobras' (PBR) first quarterly loss in 13 years has more to do with the real's depreciation than recurrent factors, CEO Maria das Gracas Foster says. The company lost 1.35B reais ($666M) vs. an expected 2.94B-real profit, and the need for international financing means heavy exposure to the dollar. Production gains of 1.5% in the past year (to 2.62M bpd) marked the slowest rate since 2007. (Beyondbrics: It's not just the FX)
Comments (7)
  • Owen
    , contributor
    Comments (609) | Send Message
     
    Petrobras' business is stable enough that it's easy to hedge out any currency or interest rate exposure. Failure to do so is essentially an active bet on the currency. If Petrobras chooses to be in the business of betting on forex, this latest quarter loss is an operational loss, not a finance one.

     

    As Joe Leahy correctly points out, a bigger problem is how the Brazilian government helps itself to Petrobras' wallet by forcing the company to supply gasoline below cost. This is a subtle form of nationalization. Anyone would be a fool to invest in a company that has the government's hand so deep in its pocket.
    4 Aug 2012, 02:40 PM Reply Like
  • untrusting investor
    , contributor
    Comments (9923) | Send Message
     
    And PBR shows it with the steady share price decline over the last five years.
    4 Aug 2012, 04:33 PM Reply Like
  • Uncle Pie
    , contributor
    Comments (2675) | Send Message
     
    A lot of problems are very difficult to solve, but that's not the case with Petrobras' problems: if the politicians just allow the domestic price of refined products to rise a bit (they've already started down the road with this) and if they ease up a bit on the rules restricting foreign companies and equipment, the shares would do a lot better. As the government is by far the largest shareholder, and as Petrobras is a source of national pride, they just might do the right things. Even politicians sometimes have the wits to do what is in their own best interest. Fingers crossed!

     

    Long PBRA
    4 Aug 2012, 03:03 PM Reply Like
  • Herr Hansa
    , contributor
    Comments (3079) | Send Message
     
    It will be interesting to see if this has any influence over the Chevron/Transocean legal case in Brazil. They need outside expertise to get the best yield from Brazilian oilfields.

     

    http://seekingalpha.co...

     

    Some of the gasoline price rise in Brazil is due to a change in ethanol blending from 25% to 20%. Since ethanol is an octane booster, this affects refining as well. I think part of that is to push usage of sugar cane based ethanol in Brazil, though another part is an attempt to increase export yields to satisfy European demand increases. However, in the near term the Brazilian government appears to have timed these changes wrong. These things may work out better in the future, but for now they are not helping.
    4 Aug 2012, 04:57 PM Reply Like
  • Caiman Valores
    , contributor
    Comments (1492) | Send Message
     
    The problem is that the Brazilian government views Petrobras as a national policy tool and that the oil wealth is to benefit Brazil rather than share holders. While this is a commendable approach it has seen Petrobras become nothing more than a political and economic policy tool where the rights of shareholders are non-existent and the belief that there is no obligation for the company to act in their interests http://bit.ly/RAB4bs .

     

    I also believe that it has been an influencing factor in the Chevron / Transocean case which I believe has been a means of putting foreign companies in the sector on notice and ensuring that they are incapable of competing against Petrobras http://bit.ly/KcEeTf .
    4 Aug 2012, 07:50 PM Reply Like
  • Herr Hansa
    , contributor
    Comments (3079) | Send Message
     
    I don't have anything against a country trying to protect their resources. The problem for Brazil is that they are just not talented enough on their own to get the best possible production from their oil resources. Whether or not the government there wants to admit it, they need outside investment and outside expertise.

     

    One look at pre-revolution Libya, or Venezuela, shows that production lags when outside investment and expertise is severely restricted. That may enable countries to save some resources for a later time period, though it could also delay needed outside expertise.

     

    Petrobras and Brazil are not going to pick up the slack with cheap Chinese made rigs, and despite the push to make rigs in Brazil, the expense of production is difficult, and the risk of getting it wrong is even greater for their environment. There are reasons that the most experienced companies are doing well, and that is years of knowledge.

     

    Petrobras have a part interest in the Frade Field where that leak occurred, yet executives from that company have been treated differently. While it is true Chevron is in charge of operations, not fining Petrobras is favoritism.
    4 Aug 2012, 08:07 PM Reply Like
  • Caiman Valores
    , contributor
    Comments (1492) | Send Message
     
    Herr Hansa I wholeheartedly agree. It amounts to Petrobras being the Brazilian government's preferred tool for developing the country's oil reserves.

     

    They have taken a number of measures to essentially lockout foreign oil companies from operating in Brazil, from defining oil assets as strategic assets, forcing foreign oil companies to enter into partnership with Petrobras to taking a heavy hand prosecutorial approach for oil leaks by foreign companies.

     

    If anything Petrboras is ill equipped to access the oil in the deepwater pre-sal fields and will need all of the technological help and expertise it can get. That as you have pointed out can only come from companies like Chevron and Transocean.

     

    On top of which you have local content laws which are delaying Petrobras ability to obtain the equipment required to access the pre-sal fields.

     

    I certainly don't expect to see much relief for investors in Petrobras in the short to medium term or even the long-term until the government and its policies change.

     

    The case against Chevron and Transocean is probably one of the most heavily manipulated, disparate and interventionist applications of the law ever seen. Every tie it starts to appear that the Brazilian courts have come to recognize this there is another order made against Chevron and Transocean. The latest being that they have to cease all production in Brazil.

     

    All of this will only harm Brazil's oil industry and the country's reputation while acting as a deterrent for international companies seeking to operate there.
    4 Aug 2012, 08:19 PM Reply Like
DJIA (DIA) S&P 500 (SPY)
ETF Tools
Find the right ETFs for your portfolio:
Seeking Alpha's new ETF Hub
ETF Investment Guide:
Table of Contents | One Page Summary
Read about different ETF Asset Classes:
ETF Selector

Next headline on your portfolio:

|