Who has accompained at least a bit the recent history of Petrobras know that it has become the symbol of dishonesty and incompetence of the Brazilian ruling class.
Towards 2010, Petrobras was pioneered as a management model and as a company destined to grow strongly; were the years of the discovery of the huge “Tupi” oil field, the discovery of the “pre sal” fields (http://www.mondoforex.com/brasile-petrobras-e-project-pre-sal/) and the end of the second mandate of Lula, with the Brazilian economy that seemed to have overtaken the international crisis of 2008.
Just in order to fund the extremely expensive pre-sal transaction, in October 2010 the Brazilian government, the majority shareholder of Petrobras, achieved the largest capitalization in world history, collecting 72.8 billion dollars on the market.
The purchase price of each share was set at R$ 29.65 (US$ 17.23 and Euro 12.54 at the time of the change). Despite the capitalization, in 2013, Merril Lynch rated Petrobras as the most indebted enterprise in the world: the wrong investments, the high cost of pre-sal and – as we know today – corruption has led Petrobras into a serious situation.
In 2014 and 2015, operational problems are added to the financial ones: for the first time since 1991, Petrobras lost around US$ 7 billion in 2014 and US$ 8.8 billion in 2015.
The causes? The cost of corruption (estimated at at least US$ 2.5 billion in 2014), the fall in oil prices, the rise in the cost of debt due to the devaluation of the real, tax and labor issues.
It should be recalled that the “pre sal” extraction, because of its high costs, is profitable if the price of oil does not fall below $ 60/70 / barrel: today, at a price of around $ 50, Petrobras should not operate the pre-sal or even invest in the search for new high-depth fields.
Result? The value of the shares, already lower than that of the offer during the capitalization of 2010, fell in a few months from R$ 23 to R$ 8-12, with a minimum of R$5 at the beginning of 2016.
On October 31, 2016, almost a year ago, I published a post entitled “Petrobras, + 160% in 2016” (in the Italian version of the blog only).
From January to October 2016, the preferencial shares (PETR4) had risen from a R$ 5 to R$ 17.5, a spectacular performance especially in the context of the economic and political crisis experienced by Brazil.
Despite strong growth, in October 2016 the stock was still far from the latest R$ 24 peak value of 2014 and even further from the offer price in the 2010 capitalization (R$ 29.65).
On the other hand, the crude oil price did not show substantial recovery signs and the Brazilian economy had a year ahead – 2017 – with still uncertain recovery prospects: both negative signs for a possible new appreciation of the Petrobras title.
Arrived in October 2017, the pessimistic prospects were overwhelming; PETR4 is quoted today at R$ 16.08, down 8% from the end of October 2016. We recall that in the same time period, the Ibovespa index grew by 18%.
What happened in these twelve months?
First of all, the oil price remained around US$ 50 per barrel, close to the historic lows, a factor which continues to disadvantage the performance of oil companies and to make economically disastrous the extraction of crude oil from the pre-sal fields.
Second, the price of fuels has been maintained artificially low by the brazilian government to help curb inflation, thus reducing the profit margins of producers / distributors.
We must add to these two factors the strategic choice of the new direction of Petrobras, headed by Pedro Parente, to proceed in the 2017/2018 to sale worth US$ 21 billion of assets to reduce the giant debt, which today is around US$ 100 billion (about 4 times the company’s Ebitda). Debt, let’s remember, made necessary to fund pre-sal exploration.
The problem is that the sale of assets (a kind of "white privatization" authorized by the Temer government) is not limited to the disposal of non-strategic assets, but also to the sale of concession rights for exploration of oilfields and the sale of refineries in active use. Among the assets sold, there is also the infamous refinery in Pasadena (USA), purchased at 50% in 2006 from Belgian Astra Oil and which was at the center of a scandal for a supposed overpayment and tax evasion (http: // g1. globo.com/economia/negocios/noticia/petrobras-inclui-refinaria-de-pasadena-em-plano-de-venda-de-ativos.ghtml).
So there is a strong process of downsizing of Petrobras, who has lost the bet to become one of the world’s leading players in the oil industry.
Petrobras stock price quotation from 2007 to mid-October 2017 – (source: Exame)
What to expect from the Petrobras title in the coming months?
We can see in the chart below the performance of PN PETR4 (preferential) stock over the last 12 months (source: Exame):
Contrary to the general index of the Brazilian stock exchange (Ibovespa), Petrobras shares have not yet recovered from the crash recorded at the denunciation of Joesley Batista, who accused President Temer to be involved in a scandal of corruption.
The increase in fuel taxes, decided by the government on 21/7/2017, has not (yet) influenced Petrobras’s listing but will certainly have a negative effect on consumption and will decrease the margin of maneuver for future price raise.
With a compromised operating profitability, at least in the short run, it can be hoped that the asset sales plan will lead to an improvement in the financial and economic position, as debt payments (about US$ 7 billion a year, about 8% of its turnover) is today Petrobras’s main source of loss.
In this scenario, if the political horizon should calm down (as it seems) with the filing of the second allegation against Temer, probably Petrobras shares may be the protagonists of an interesting growth in the last quarter of 2017.