I have been in the Oil and Gas industry for some 34 years and have recently returned from a 3.5-year expatriation in Brazil, during which period I worked closely with Petrobras (PBR), particularly in the so-called "pre-salt" development.
PETROBRAS's (PBR) mounting problems go way beyond technical challenges. The leftist Labor Party that has been governing Brazil for almost 12 years now is using PETROBRAS merely as a cash-cow to fund its leftist political programs and election campaigns in exactly the same way the Venezuelan government uses Petroleos de Venezuela S.A. (PDVSA). All key company decisions in the last 10-12 years have been driven by political gains, with absolutely no regard for technical, economical or managerial issues.
Many over-priced multi-million dollar contracts have been signed by company officials in these past years not at all based on competitive bids or technical contents, but with companies "friendly" with the current government that would return a substantial part of their revenues to the government itself in the form of "campaign contributions". See for instance the case of the Pasadena refinery in Texas, assessed in less than $50mi, for which PETROBRAS paid $1.25bi. Or the case of the Abreu e Lima refineries, being built in Northeastern Brazil, originally estimated in $2.5bi, which already exceeds $22.4bi and is not even ready. The Abreu e Lima project was completed in 2005; construction started in 2007 and was supposed to be in operation in 2010. A 4-year delay and 343 contractual change orders and addenda later and still there is no end in sight.
The exactly same motivation is behind the most recent "no-bid-oil-production-rights purchase" pushed through PETROBRAS' throat by the government; it was not meant to be in PETROBRAS' best interest as sharply pointed out in a recent article by Morgan Stanley, but rather to generate cash for a leftist party hungry for campaign contributions in a key election year.
These are not minor hick-ups; these are gross mismanagements. In October there will be presidential elections in Brazil. Should the Labor Party win again (still a very likely scenario despite recent drop in Ms. Rousseff's support) the current situation will only get worse.
Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.