Replies to post #224 on The Rising Influence of Rising Affluence

[DewDiligence]

Thanks, CT! My email address is in my iHub profile. Regards, Dew

[DewDiligence]

Banking on Petrobras' Field of Dreams

[This article from Saturday’s WSJ echoes what I’ve been saying about Petrobras on this board (e.g. #msg-40256246, #msg-38956800): it’s dangerous to be a minority shareholder when the controlling shareholder is the federal government of Brazil.]

http://online.wsj.com/article/SB124966952158815073.html

›AUGUST 8, 2009
By ANTONIO REGALADO

You would think Petrobras' discovery of huge offshore oil reserves would be an investor's bonanza. But beneath the euphoria, there is a minority view: maybe not so much.

The reason is that Petrobras is a political animal. It is controlled by Brazil's government, which holds 55% of voting shares. Its chairman is a minister who recently got a face-lift ahead of a planned presidential run in 2010.

And of late, Petrobras has been doing what is best for Brazil's ruling Worker's Party. Just ask its CEO, who has been busy dealing with a congressional probe about whether the company's vaunted social programs are so much political payola.

The deep-water oil fields are a discovery for the century. And so, Brazil's government is developing a new regulatory plan. Instead of competitive bidding for concessions, pumping petrol and paying royalties, the idea is that the government will stay in control, hiring operators and paying them in oil.

But the operator -- of the entire field -- is going to be Petrobras. At least, that is the hope of leftist ministers in the centrist government who, following the famous nationalist slogan "The Oil is Ours," don't like the idea of multinationals pumping Brazilian gold.

It is a lot to ask of a single company. It would be pouring its resources -- management, capital, drill rigs -- into immensely challenging deep-water oil fields where its take may be smaller than on its current projects. Brazilian analyst Paula Kovarsky, of Itau Securities, puts it this way: "We find it hard to believe that Petrobras will derive any economic benefit from this deal."

Petrobras shares have been soaring. But from now on, it may be Brazil's government that gets the upside.‹