It
was Petrobras that was prospecting for oil off the East Coast of New
Zealand
Brazil's
Incredibly Shrinking Petrobras
6
August, 2012
In
2008, a few months before the end of the world, Goldman Sachs gave
Petrobras a price target of around $60. Today, it is trading at $20
a share, will undoubtedly fall below that before the day is done, and
it is arguably the black sheep of big oil plays in the hemisphere.
From
it’s multi-billion dollar secondary share offering a few years back
that spooked investors worried about the government controlling even
more of the company while it diluted shares of minority holders, to
the government keeping a lid on fuel prices that capped profits,
Petrobras is the class state run entity. It doesn’t exist to make
shareholders profits. It exists for the commonwealth.
But
when investors saw Petrobras lose another billion Brazilian reals
last quarter, it just gives them another reason to avoid the firm,
and maybe even avoid the old commodity investment thesis in Brazil
altogether. And why not? China is slowing down. All the mining and
steel majors in Brazil are struggling. Shares are down across the
board. These guys are duds.
Petrobras
shares in New York are down over 18 percent year to date, while the
iShares MSCI Brazil (EWZ) exchange traded fund, which tracks the BM&F
Bovespa index is down just bout 6 percent.
To
add insult to injury, Petrobras reported its worst earnings in over a
decade on Friday, citing the currency’s 10 percent depreciation
against the dollar.
Petrobrasreported a second-quarter net loss of 1.35 billion Brazilian reais
($668 million), down from a net profit of BRL10.9 billion in the
year-ago quarter.
“We
are working to recover our profitability,” said Chief Executive
Maria das Gracas Foster, who took over from Jose Sergio Gabrielli in
January, in a statement.
Foster
faces a difficult task. Petrobras has seen its profits erode over the
past year. It doesn’t have the refining capacity to make gasoline
to meet demand, so it has to import it.
The
company recently said it would be producing less oil out of its deep
ocean wells far off the coast of Rio de Janeiro. Even when oil prices
were rising, Petrobras shares didn’t follow the trend. While
investors seemed happy with a more realistic view of the company’s
oil wealth off shore, the shares of Petrobras in the U.S. have
struggled to stay in the 20s for months.
Investment
firms will be repricing Petrobras in the days ahead. Long gone are
Goldman’s $60 days for Brazil’s biggest oil company.
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