Replies to post #230 on The Rising Influence of Rising Affluence

[DewDiligence]

Petrobras 2Q09 EPS and EBITDA Beat Consensus

[Oddly, PBR does not hold its 2Q09 CC until Tuesday despite its having released the financials on Friday. Maybe they want to give the analysts a few days to think about the CC questions they will ask so they won’t sound as stupid as the analysts on other companies’ CC’s :- )]

http://www.reuters.com/article/marketsNews/idAFN1445914220090814

›Fri Aug 14, 2009 7:16pm EDT
By Brian Ellsworth

RIO DE JANEIRO, Aug 14 (Reuters) - Brazilian state-run oil company Petrobras' second-quarter net profit fell 20 percent from the year earlier on lower global oil prices and higher finance costs, the company said on Friday.

Petroleo Brasileiro SA (PBR) said net earnings were 7.73 billion reais ($4.16 billion) compared with 9.72 billion reais in the second quarter of 2008.

Earnings before interest, taxes, depreciation and amortization (EBITDA) were 17.51 billion reais compared with 18.63 billion reais the year before.

"A lower price for Brent (crude oil), which fell 53 percent in the (semester), falling from $109 in the first semester of 2008 to $52 in the first semester of 2009, had a strong influence on the result" the company said in a statement.

"Greater volumes of financing, of commercial hedge operations and the effect of exchange rate on foreign assets also contributed to this result."

The oil giant had been expected to post a net profit of 6.97 billion reais ($3.81 billion) and EBITDA of 14.50 billion reais according to the average forecast of five analysts surveyed by Reuters.

Financial costs of 1.4 billion reais in the first semester, sparked by greater total financing, cut into the bottom line.

Total debt rose to $35 billion at the end of the quarter, up 16 percent from the first quarter of 2009, as the company boosted leverage to develop the massive offshore sub-salt fields believed to contain billions of barrels of oil.

Production of oil and liquids rose 6 percent compared with the year earlier quarter as new oil projects, including the Frade field under development with Chevron Corp came online.

Investments totaled $32 billion for the first semester. Finance Director Almir Barbassa told reporters at an earnings news conference that the 2009 investment target of $60 billion could be increased.

Petrobras intends to invest $174 billion through 2013 in a broad plan to develop areas in the little-explored Santos Basin where the massive Tupi field lies.

In May, it pumped the first oil from Tupi as part of a 15-month test that will produce between 15,000 and 30,000 barrels per day, although the test was suspended in July due to equipment failure.

The company hopes to turn Brazil into a major energy exporter by developing sub-salt reserves discovered in 2007 that are believed to contain billions of barrels of crude.

New sub-salt exploration has been halted as the government prepares an overhaul of existing oil legislation expected to boost Petrobras' role in offshore development and give the state a greater percentage of revenues.

Energy Minister Edison Lobao said on Friday Petrobras would have at least a 30 percent stake in the future sub-salt projects.

President Luiz Inacio Lula da Silva was originally slated to present a proposal for the oil overhaul on Wednesday, but a press advisor said on Friday the government needed more time further consultations.‹

[DewDiligence]

Lula Submits ‘Petrosal’ Proposal to Brazilian Congress

[PBR shares fell 4% Monday as investors focused on dilution from the planned increase in the federal government’s equity stake as well as the potential for increased government meddling in the company’s business from a new cabinet-level ministry. These negatives evidently outweighed the positive aspect of the plan (for PBR shareholders) that designates PBR the operator of all sub-salt projects with a minimum 30% stake. Note: the federal government of Brazil already owns a controlling stake in PBR’s voting (common) shares.]

http://www.reuters.com/article/marketsNews/idAFN3133403520090831

›Mon Aug 31, 2009 6:18pm EDT
By Brian Ellsworth and Denise Luna

BRASILIA, Aug 31 (Reuters) - Brazil's president proposed on Monday giving the state more control over one of the world's biggest recent oil finds in a high-stakes move that could drive the country's development for decades to come.

The long-awaited proposal for offshore "subsalt" fields thought to contain at least 50 billion barrels of light crude could usher in a new round of investment in Brazil's oil industry if energy companies find the terms acceptable.

But the overhaul, a major step toward greater state control of Brazil's successful oil sector, could also leave much of the treasure trapped under the sea if the regulatory framework turns out to be too onerous.

President Luiz Inacio Lula da Silva, a charismatic and hugely popular former union leader who has steered Brazil through an economic boom with a mix of market-friendly policies and social spending, hailed the oil reform as a "new independence day" for South America's largest nation.

"The subsalt is a gift from God. Well explored and well managed, it can create big transformations in Brazil," Lula said at an event to unveil the plan in Brasilia, the capital.

"If we don't make the right decisions, what appears to be a winning ticket could be a source of enormous problems."

Under Lula's plan, the government will create a new state holding company called Petrosal to manage new projects and a new contract system that gives the state a share of the oil. The government will also have the right to declare any oil region strategic and implement a production-sharing system.

The plan would make state-run energy firm Petrobras (PETR4.SA PBR) the sole operator of new fields with a minimum 30 percent stake in all future projects in the so-called subsalt oil fields.

Presenting the plan, Lula and his chief of staff, Dilma Rousseff, stressed that Brazil would not fall victim to the so-called "resource curse" that has soured oil bonanzas in countries from Iraq to Nigeria to Venezuela.

The government's oil revenues will go into a "social fund" aimed at channeling money into poverty reduction, science and technology, the environment and improving an education system that lags much of the world.

WORLDWIDE TREND

Brazil's proposal is part of a worldwide trend of governments seeking greater control over natural resources. But Brazilian officials stressed that their plan does not seek to shunt aside foreign capital, as has happened in Venezuela.

"This is clearly a move to a more state-centric model, more than Brazil has had, and more than the government was talking about a few months ago," said Erasto Almeida, Latin America analyst at Eurasia Group in New York.

"But it's not Brazil moving in the direction of Venezuela. They are respecting existing contracts and it's pretty clear there will be opportunities for international oil companies."

Foreign energy companies were loathe to judge the proposal. Devon Energy Corp (DVN) declined to comment, while Chevron Corp (CVX) was noncommittal on the proposal but called Brazil "the future for the oil industry."

Exxon Mobil (XOM) said Brazil would benefit most from a "framework that encourages additional investment and timely resource development, and rewards innovation and the deployment of advanced technologies."

The plan also calls for a capital infusion of about $50 billion in Petrobras to boost state control over the firm, which is currently 55 percent controlled by the government.

Petrobras shares posted their biggest drop on Monday since June 3, shedding 3.6 percent to 31.38 reais on falling oil prices and concern the capitalization plan will dilute shares.

CONGRESSIONAL BATTLE LOOMS

Critics say the changes inject too much political influence into Brazil's oil industry [no kidding]. The oil wealth is likely to be used as a major plank in Lula's campaign to get Rousseff elected as his successor in elections scheduled for October 2010.

Some also say the government has played down the exploration risk of tapping the oil, which lies below shifting sand and a thick layer of salt up to 5 miles (8 km) beneath the ocean surface.

The proposal gives an "absurd amount of power" to a cabinet-level energy commission that could open the door to political interference in operational decisions, said Marilda Rosado, a Rio de Janeiro-based lawyer who specializes in energy.

The prospect of prolonged wrangling in Congress over Lula's proposal could also weigh on Petrobras and hold up further investments in the sector.

The opposition may struggle to argue against a greater state share of the oil wealth in the run-up to an election, but Congress is notoriously slow and its legislative agenda has been put on hold by a 3-month-old Senate graft scandal.

"The government doesn't want to improve the oil model. This is obviously only for electoral purposes," said Luiz Paulo Vellozo Lucas, a deputy with the main opposition PSDB party. "We will attack the proposal as a whole."

The proposed overhaul focuses on vast new oil reserves that were discovered off Brazil's southern coast in 2007, giving the country the potential to become a major energy exporter.

Lula proposes switching to a production-sharing system in which the government owns a part of the oil produced. That is a shift from the current system in which companies participate in competitive auctions to win the rights to explore for oil in blocks.‹