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PBR AT A GLANCE

P/E ► 5.49 AVG EV/EBITDA ► 3.72 AVG ROA ► 15.4% AVG ROE ► 29.7% AVG Debt to Equity ► 1.03 AVG Current Ratio ► 1.08 AVG Interest Coverage Ratio ► 32.8 AVG

 

 

 

 

 

 

Revenue, Net Income, and Net MarginRevenue, Gross Profit, and Gross MarginOperating IncomeEbitIncome Before TaxesNet Income from Continuing OpsInterest vs Continuing IncomeInterest CoverageOperating Expenses Research & DevelopmentSG&AAmortization & Depreciation

Petroleo Brasileiro SA, also known as Petrobras, is a Brazil based holding company that engages in the exploration, production, refining, and sale of crude oil and other energy sources. Petrobras operates over 100 production platforms, 16 refineries, 30,000 kilometers of transportation ducts and more than 6,000 gas station in Brazil, Argentina, Mexico, Portugal, the United States, Peru and Turkey.^[1] Petrobras operates in four segments: Exploration and Production, Downstream, Gas and Energy, and International.^[2] Through its Exploration and Production segment, Petrobras produced 2.06 billion BOE per day, of which 87% was crude oil.^[3] Most of the oil produced from Petrobras’s wells is refined, sold, and transported through the company’s Downstream segment. By refining 1,978 thousand barrels per day of oil and 422,000 barrels of natural gas in 2008, Petrobras supplies almost the entire Brazilian continent with refined petroleum and gas products.^[4] As of December 31, 2007, Natural gas reserve comprised 16% of the company’s total reserves, but Petrobras consolidated its natural gas operations under the Gas and Energy segment in 2008 to reduce operating costs and increase the company’s production of natural gas.^[5]

While 90% of Petrobras’s 11.19 billion barrels of oil and gas reserves come from Brazil, the company has the potential of becoming a major net exporter of oil.^[6] In particular, Chinese energy companies and Chinese banks agreed in February 2009 to finance the development of Petrobras’s offshore oil fields in exchange for guaranteed supplies of oil once the fields developed. However, low oil prices in 2008 and early 2009 have the potential of reducing Petrobras’s exploration efforts because of the expensive equipment and technology required to develop deepwater oilfields.^[7] Despite low gasoline and diesel prices, Petrobras plans to continue expanding its domestic refining and distribution operations. As of December 31, 2008, Petrobras has the eighth largest downstream operations in terms of capacity in the world but annual investments of $22.5 billion from 2008 to 2012 have the potential to significantly increase Petrobras’s refining and transportation capacities.^[8]

[edit] Business Financials

[edit] Acquisition of Petrobras de Valores Internacional de Espana SL

In April 2009, Petrobras took a 60% stake in Petrobras de Valores Internacional de Espana SL from Petrobras Energia SA for $619 million. ^[9]

Petrobras makes money from the following:

• Domestic sales, which consist of sales of oil products, natural gas, electricity and petrochemical products
• Export sales
• Services, investment income and foreign exchange gains

A key driver of the company's fundamental business is the level of its oil reserves. The majority (over 80%)of Brazilian oil production comes from a single location, the Campos Basin^[10], with about 91% of this production coming from offshore sites.

As the national petroleum company of Brazil, Petrobras owns the largest gas pipeline network in the country by far, giving it a near monopoly on the natural gas supply in the country. It also invests heavily in areas outside Brazil, with acquisitions of foreign oil companies and contracts to explore deep water regions such as West Africa and the Gulf of Mexico.^[11]

Since 2002, Petrobras has developed new technologies allowing it to become increasingly successful at finding new oil deepwater exploration, outpacing bigger rivals such as ExxonMobil , BP, and ChevronTexaco. From 2002-2005, Petrobras doubled its success rate with exploratory wells ^[12] and in November 2007, announced the discovery of the deepwater Tupi oilfield, one of the largest such discoveries in decades at an estimated 5 to 8 billion BOE (barrels oil equivalent).

In the first quarter of 2008, Petrobras increased oil production by 2% and natural gas production by 10% sequentially. Net income increased from R$5 billion to R$6.9 billion. Revenues grew by R$1.5 billion. Operating profits for the upstream segment rose from R$12.8 billion to R$14.5 billion, driven by rising oil prices and increased production; simultaneously, operating profits for the downstream segment fell from a positive of R$478 million to a loss of R$903 million, as rising oil prices have crunched margins for all major refiners, even majors like Petrobras. The International segment saw operating losses of R$756 million in 4Q07 rise to an operating profit of R$166 million, as increased world demand from developing nations and a decreased Brazilian reliance on gasoline due to the fact that most of the nation's cars are fueled by ethanol led demand for Petrobras' oil to shift out of the domestic sphere. Gas and Power saw it operating losses decrease from R$756 million to R$502 million, thanks to the country's economic growth.

In the first half of 2008, the company saw a trade surplus of $500 million.^[13] Second quarter net income rose 29% year-on-year, to $5.48 billion - a record high.^[14] In October 2008, the company released the news that its September production was a record high - up 7.6% from the year before.^[15]

[edit] Trends and Forces

[edit] Despite declining profits in first quarter 2009, Petrobras increases production and investments in offshore oilfields

Although net profits for the first quarter of 2009 declined 20% when compared to the same quarter in 2008, Petrobras's capital investments increased 41% when compared to the first quarter of 2008.^[16] For the first quarter of 2009, Petrobras' consolidated net profits were approximately $2.87 billion.^[17] The decline in profits resulted from lower oil prices worldwide in the quarter as well as a 63% decline in domestic oil sales.^[18]

Despite lower oil prices for the first quarter of 2009, Petrobras has continued to develop its offshore oilfields and increase oil and natural gas production. The Tupi fields, which were discovered in 2007, have the potential of containing reserves equivalent to 5 billion to 8 billion barrels of oil equivalents and were the focus of Petrobras' spending in the first three months of 2009.^[19] Investments made during this quarter rose 41% when compared to the same quarter in 2008.^[20] Petrobras' production in Brazil also increased in the first quarter of 2009. Domestic oil and natural gas production averaged 2.261 barrels of oil equivalent per day, a 7% increase from the first quarter in 2008 and the company highest quarterly production rate since its founding.^[21] Production going on stream at three new platfroms contributed to this increase.^[22]

[edit] Despite Weak Demand for Crude and Gasoline, Petrobras has record profits in 2008 and plans to out spend competitors in 2009

For the full year 2008, Petrobras generated profits of $14.23 billion(USD), an increase of 58% from 2007.^[23] Petrobras's net income was 30% higher in 2008 than in 2007.^[24] Although total oil and gas production increased by 4% when compared to 2007, Petrobras's record profits were primarily a result of higher oil prices.^[25] Gasoline and Diesel prices, which together represent 30% of Petrobras's overall sales in 2008, were respectively 10% and 15% higher in 2008. In addition, profits were also higher due to the 35% drop in refining costs.^[26] However, domestic oil sales dropped .3% year-over-year in the last quarter of 2008.^[27] Petrobras's management argues that the drop in domestic sales in the fourth quarter was a result of seasonal changes in fuel consumption and not the global recession beginning in 2007.^[28]

With crude oil prices down 70%, many oil & gas majors like Chevron Corporation (CVX) and Exxon Mobil (XOM) expect lower earnings not only in their refining segments but also in their exploration and production segments.^[29] Outspending Exxon Mobil (XOM), Chevron Corporation (CVX), Royal Dutch Shell (RDS'A) and state-owned oil companies like Petroleos de Venezuela, Petrobras plans to spend $174 billion to develop new natural gas and oil fields.^[30] In order to meet the rising worldwide demand for energy , Petrobras plans to increase production 7% annually from 2009 to 2020.^[31] Part of the proposed $174 billion will go to lowering production costs.^[32] New projects have the potential to remain profitable if the long-term oil prices stays at $45, which is significantly smaller than the $70 long-term crude price OPEC members say they will need to remain profitable in the long term.^[33] Petrobras management predicts that crude exports to the U.S. and Europe will increase as other oil majors close production rigs. Petrobras exported a company record of 620,000 barrels per day for the month of December.^[34]

Additionally, Petrobras sells refined petroleum products at prices mandated by the Brazilian government.^[35] As a result, Petrobras is not subject to the same refined price volatility and uncertainty that have hurt the profits of American oil refiners.^[36] According to the director of Supply and Refining, Paulo Roberto Costa, Petrobras may lower its refined prices if crude prices in the U.S. stay at $30 for the first half of 2009.^[37]

In February 2009, Petrobras installed a new production, storage, and offloading vessel in the Jabuti field that will increase production capacity by 100,000 barrels of crude/day and 3.5 million cubic meters of natural gas/day.^[38] In January 2009, Petrobras increased its production capacity by 180,000 barrels of oil and 6 million cubic meters of natural gas a day when it finished its P-51 platform at the Marlim Sul field.^[39] Petrobras also plans to start its long-term test at the Tupi field in the Santos Basin, which has the potential to hold between 5 billion to 8 billion barrels of crude reserves. Petrobrars plans to increase its total production capacity to 2.05 million barrels a day in response to the rising worldwide demand for energy.

[edit] To Finance Future Projects, Petrobras (PBR) seeks Foreign Investments from China, U.S.

In order to meet its $174.4 billion 2009-2013 investment plan, Petrobras is seeking foreign investment from Chinese banks and oil companies, U.S. investors, and Sovereign Wealth Funds in the Middle East.^[40] In particular, the China Development Bank has plans to invest $10 billion in Petrobras's exploration and production operations, particularly in developing the company's subsalt fields.^[41] In addition to the China Development Bank, the China National Offshore Oil Corp. and an unnamed Chinese Bank began negotiating potential investments with Petrobras's management beginning in February 2009. In return for investments, Petrobras has promised future oil supplies. As a result, investments in Petrobras's subsalt oil fields are a way for China to secure future supplies in response to the rising worldwide demand for energy, particularly in China.^[42] For example, Petrobras has entered a one-year deal with the Chinese state-owned oil company SINOPEC Shangai Petrochemical Company (SNP) agreeing to supply the company with 100,000 barrels/day of oil.^[43]

[edit] Increased Investments from Oil & Gas Drilling & Exploration companies in Brazil's offshore oilfield have the potential of benefiting Petrobras

Both Chevron Corporation (CVX) and Royal Dutch Shell (RDS'A) have partnered with Petrobras in order to develop several of Brazilians offshore oil fields.^[44] Chevron Corporation (CVX) has fields at Fade, Maromba field, and the Campos Basin. Royal Dutch Shell (RDS'A) has a 40% stake in Brazil's Santos Basin.^[45] Production at these fields have the potential of benefiting Petrobras because the Brazilian oil company has a majority stake in these fields.^[46] However, field developments have the potential of being halted due to tighter credit and lower oil production in the first quarter of 2009. The development of the field at Papa Terra has been delayed by high costs. Petrobras plans to finance these developments by relaunching tenders. Chevron Corporation (CVX) has the potential of increasing its investments in its Brazilian field development as well as providing subsalt development technology.^[47]

[edit] Political issues

The Brazilian government has a majority stake in Petrobras, which impacts investors in a few important ways. First, the company’s performance is tied to the government’s stability. Second, by virtue of its political position, the company has a hammerlock on virtually all oil exploration and production; until 1995, Petrobras was the only crude oil and natural gas company sanctioned by the government, giving it stakes in all oil fields discovered in Brazil. Since then, this preferential treatment has been opened to a few other Brazilian oil companies, although Petrobras remains the largest beneficiary. ^[48]

In June 2009, the Brazilian state-owned Petrobras announced price cuts for gasoline and diesel fuel at refineries of 4.5% and 15%, respectively.^[49]The Brazilian government has kept prices constant for the beginning in 2009 to buffer local consumers from the impact of volatility in the international markets.^[50]

In July 2008, PBR announced it would take a 40% share in a JV with Venezuelan state oil company, PDVSA, to develop Venezuela's Carabobo oil field, which is part of the Orinoco tar sands belt. While this opens the company to a field that produces 600,000 bbls a year (with the potential to produce much more), it puts it at risk; in 2007, Venezuela nationalized the holdings of ConocoPhillips and Exxon Mobil in the Orinoco belt.^[51]

[edit] Tupi deepwater discovery

Petrobras has been successful in finding oil. The Tupi oilfield discovery, announced in November 2007, is estimated to contain 5 to 8 billion BOE , making it one of the largest discoveries of the decade. The petroleum from this oilfield, however, is beneath 2,000 to 3,000 meters of water, making it an expensive deepwater recovery process. Petrobras' success in deepwater oil exploration has lead the company to invest zealously: as of May 2008, the company had contracted 80% of the world's deepwater rigs, driving up dayrates for the sector as other companies like Exxon Mobil and BP competed for the remainder.^[52]

[edit] Jupiter deepwater discovery

The Jupiter deepwater offshore field adds significant potential production.--PGSanalyst 19:33, January 27, 2009 (PST)

[edit] Cariocas deepwater discovery

The Cariocas deepwater offshore field adds significant potential production.--PGSanalyst 19:33, January 27, 2009 (PST)

[edit] Azulao deepwater discovery

In January 2009 ExxonMobil announced a show of oil in a deepwater well on the Azulao block offshore Brazil^[53]. XOM is partnered up with Hess and Petrobras. Luis Lemos, a representative of a Brazilian Oil and Gas law firm has told Bloomberg that Azulao could contain 8 Billion Barrels of oil but this report is unconfirmed by other sources^[54].--PGSanalyst 17:48, March 29, 2009 (PDT)

[edit] Ethanol and other alternative energy sources

Following the trend of clean energy and pressured by declining oil supply, Petrobras developed a process for production of biodiesel which allows a 40% mixture of biodiesel without changing the fuel's quality. Instead of investing heavily into production of biofuels, the company has constructed an alcohol pipeline, and bought minority stakes in various ethanol companies. The opportunity for ethanol in particular is large, as Brazil is the world's biggest ethanol producing country, single-handedly accounting for one-third of the world's output ^[56]. Based on infrastructure investments as of 2006-07, [biofuels]] should account for about 1% of Petrobras's income between 2008-2012.

[edit] Competition

Petrobras remains the largest government owned oil company in Brazil, so it faces very little competition on its home turf. It is difficult for competitors to enter the market given the preferential treatment Petrobras has with the Brazilian government. Despite the opening up of the Brazilian oil market, Petrobras has maintained its market share.

[edit] Global Oil Industry Operational Data

[edit] References

1. ↑ Reuters: PBR Profile
2. ↑ Reuters: PBR Profile
3. ↑ Reuters: PBR Profile
4. ↑ Reuters: PBR Profile
5. ↑ Petrobras.com: Business Operations
6. ↑ Reuters: PBR Profile
7. ↑ moneymornings.com: Petrobras will be poised for big economic gains
8. ↑ Petrobras.com: Business Operations
9. ↑ Reuters: Petroleo Brasileiro SA - Petrobras Acquires 60% Stake in Petrobras de Valores Internacional de Espana SL from Petrobras Energia SA, April 2009
10. ↑ PBR 2006 20-f, item 4, p 26
11. ↑ PBR 2006 20-f, item 4, p 55-58
12. ↑ PBR 2006 20-f, item 4, p 26
13. ↑ Street Insider: "Petrobras (PBR) Sees $500M Trade Surplus in '08"
14. ↑ CNN: "Brazil's oil company: $5.5 billion profit"
15. ↑ http://www.marketwatch.com/news/story/story.aspx?guid={AC06D002-C3BA-44F0-B338-F783A58EE8D9}&siteid=rss MarketWatch: "Petrobras logs record monthly oil production "]
16. ↑ rigzone: Petrobras Posts Q1 Financial Results, Profits Down by 20%, May 2009
17. ↑ rigzone: Petrobras Posts Q1 Financial Results, Profits Down by 20%, May 2009
18. ↑ rigzone: Petrobras Posts Q1 Financial Results, Profits Down by 20%, May 2009
19. ↑ Seekingalpha.com: Brazil's Big Oil Bet, May 2009
20. ↑ rigzone: Petrobras Posts Q1 Financial Results, Profits Down by 20%, May 2009
21. ↑ rigzone: Petrobras Posts Q1 Financial Results, Profits Down by 20%, May 2009
22. ↑ rigzone: Petrobras Posts Q1 Financial Results, Profits Down by 20%, May 2009
23. ↑ WSJ: UPDATE: Brazil Petrobras Caps Record 2008 With Weak 4Q , March 2009
24. ↑ WSJ: UPDATE: Brazil Petrobras Caps Record 2008 With Weak 4Q , March 2009
25. ↑ WSJ: UPDATE: Brazil Petrobras Caps Record 2008 With Weak 4Q , March 2009
26. ↑ WSJ: UPDATE: Brazil Petrobras Caps Record 2008 With Weak 4Q , March 2009
27. ↑ WSJ: UPDATE: Brazil Petrobras Caps Record 2008 With Weak 4Q , March 2009
28. ↑ WSJ: UPDATE: Brazil Petrobras Caps Record 2008 With Weak 4Q , March 2009
29. ↑ WSJ:Chevron Warns of Hefty Drop in Earnings
30. ↑ Business Week: Petrobras Makes a Big Bet, January 2009
31. ↑ Business Week: Petrobras Makes a Big Bet, January 2009
32. ↑ Business Week: Petrobras Makes a Big Bet, January 2009
33. ↑ Business Week: Petrobras Makes a Big Bet, January 2009
34. ↑ Seeking Alpha: Petrobras' Exporting Has Record Breaking December, January 2009
35. ↑ Seeking Alpha: If Oil Stays Down, Petrobras May Lower Gas Prices, January 2009
36. ↑ Seeking Alpha: If Oil Stays Down, Petrobras May Lower Gas Prices, January 2009
37. ↑ Seeking Alpha: If Oil Stays Down, Petrobras May Lower Gas Prices, January 2009
38. ↑ WSJ: Brazil Petrobras: To Install Jabuti Field Oil Platform In Days, February 2009
39. ↑ WSJ: Brazil Petrobras: To Install Jabuti Field Oil Platform In Days, February 2009
40. ↑ WSJ: Brazil Petrobras To Sign Finance MOU With China Bank, February 2009
41. ↑ WSJ: Brazil Petrobras To Sign Finance MOU With China Bank, February 2009
42. ↑ WSJ: Brazil Petrobras To Sign Finance MOU With China Bank, February 2009
43. ↑ WSJ: Brazil Petrobras To Sign Finance MOU With China Bank, February 2009
44. ↑ WSJ: Chevron's Frade Field Just Start Of Promising Brazil Prospects, June 2009
45. ↑ WSJ: Chevron's Frade Field Just Start Of Promising Brazil Prospects, June 2009
46. ↑ WSJ: Chevron's Frade Field Just Start Of Promising Brazil Prospects, June 2009
47. ↑ WSJ: Chevron's Frade Field Just Start Of Promising Brazil Prospects, June 2009
48. ↑ PBR 2006 20-f, item 4, p 25
49. ↑ WSJ: Brazil To Cut Gasoline, Diesel Prices At Refineries, June 2009
50. ↑ WSJ: Brazil To Cut Gasoline, Diesel Prices At Refineries, June 2009
51. ↑ Financial Wire: "Petrobas To Take 40 Percent Stake In Joint Venture To Explore, Develop Carabobo Oil Field"
52. ↑ Bloomberg.com: "Petrobras Hires 80% of Deepwater Rigs, Inflates Rents (Update1)"
53. ↑ Shell Oil: Energy Current Online- "ExxonMobil discovers signs of oil in Azulão block"; retrieved on 2009-29-09
54. ↑ ArabNews.com- "Peak Oil theory appears irrelevant"; retrieved 2009-29-09
55. ↑ www.Lousiana.gov, Comments on Crude Oil Gravity Adjustments
56. ↑ Petrobras Biofuels Presentation, May 2007, p. 10