Brazil’s state oil company Petrobras, which will mark its 60th anniversary on Thursday, has announced it will increase production by 50% in an effort to overcome the current situation. Nine production units now being installed will pump an additional one million barrels a day beginning next year said Petrobras CEO María das Graças Foster.
Once ranking third among its global counterparts, Petrobras now comes in 10th on the list of oil industry firms.
Three years after raising around 120 billion Reais (54 billion dollars) in a share issue, Petrobras is now listed at 240 billion Reais (108 billion) on the São Paulo stock market (Bovespa) – half of its value when it was first floated on the Brazilian bourse in 2010 and listed at 453 billion Reals (204 billion).
Reasons behind the decline in its finances vary but include insufficient refining capacity and frozen fuel prices in the domestic market.
According to estimates from Vinicius Canheu, a petro-chemical analyst at Credit Suisse, the mis-match for every 10% difference between the price of imported fuel and selling price in Brazil costs Petrobras a loss of 5.2 billion dollars.
Petrobras officials and its private investors hope that President Dilma Rousseff lifts the cap on the price of fuel – an unpopular move she is reluctant to make, especially before next year’s presidential elections in which she is expected to run for a second term.
Rousseff served as energy and mines minister and on the board of the Petrobras during the previous presidential term of Lula da Silva. After she came to office, Rousseff replaced José Sergio Gabrielli, a top official from the ruling Worker’s Party (PT), with petroleum engineer María das Graças Foster, as the head of Petrobras – a decision applauded by investors.
But a series of circumstances and perhaps excessive meddling by the government that may have scared off investors has brought Petrobras to its current situation.
Last month, few of the oil companies premier league showed an interest in the auctioning process later this month for oil licences in the in the rich Libra pre-salt field.
In New York last week for the UN General Assembly, Rousseff confided to a group of foreign businessmen that revelations about spying activities by the US National Security Agency (NSA) on the Brazilian government may have frightened away potential investors.
Petrobras by law must have a minimum 30% participation in the concessions that will be awarded for drilling in what is considered the world’s largest known reserve, located in the Santos Basin, about 140 miles off the coast of Rio de Janeiro.
Despite current circumstances there is hope and optimism that Petrobras’ shares will once again become profitable in the long term. But analysts say investors will have to be patient because it is a ten year process.