Policies in place to weather the storms
Brazil to gain a new global profile?
Banks trade on their strengths
Profitability holds up – so far
Consolidation to accelerate?
Petrobras: hope amid the storm
Petrobras, the oil giant 55.7% owned by the state, is often held up as a totem of Brazil’s success. The company is Brazil’s largest single exporter – last year its exports represented almost 9% of the country’s total – and its largest taxpayer, representing around 9% of federal, state and municipal taxes. So how is it faring?
Clearly the fall in the oil price below $50 in late November – having reached a record $147 on 11 July– has hurt Petrobras. However, the firm – and Brazil more broadly –has made a series of momentous finds in recent months. It has almost doubled its Society of Petroleum Engineers proven reserves of 12.6 billion barrels through discoveries in the Tupi field (5 billion-8 billion barrels) and nearby Iara field (3 billion-4 billion). Together they could eventually make Brazil one of the world’s largest oil producers.
“We have enough work for years and reserves that will ensure a positive growth profile,” says Theodore Helms, executive manager of investor relations at Petrobras. “The new finds will take several years to come on stream but development is already under way.”
While the discoveries, which are beneath a layer of salt, are challenging to extract, Helms says Petrobras has already met similar challenges elsewhere in the Santos Basin. “The oil is deeper and further from the shore than previous operations but higher productivity and quality will offset any additional costs.”
Helms says that recent falls in the oil price have little bearing on Petrobras’s long-term strategy. “Our 2008-12 plan, announced in August 2007, is based on $55 a barrel in 2009 and $50 in 2010 and our baseline assumption for approving upstream projects is much lower than that,” he says. “Of course, the current environment means less cash flow and may delay some short-term projects but it changes our strategy less than people might imagine.”
Similarly, Helms says that the fall in the real from R$1.60 to R$2.25 has not been hugely problematic for the company. “To some extent changes in the currency and the price of oil have offset each other as most of our costs are in reais and oil is denominated in dollars,” he says. Commenting on the FX derivatives scandals afflicting many companies in Brazil, Helms notes: “We don’t speculate on the future of the currency and we are not hedged at all.”
Petrobras is similarly unconcerned by the tougher financing environment. “We are investment grade and our long-term prospects are good at $60 a barrel. We are a safer credit than many financial institutions – at least you know what you get rather than having to worry about exposures. In any case, our treasury department is capable of adjusting to new conditions and we believe that the capital market will remain accessible for quality borrowers,” says Helms.
