Petrobras: there are two sides to any coin

Analysis based on official balance sheet data clearly shows how sustainable, productive and profitable the Brazilian national oil company really is.

The financial statements published last March 21st show a record loss of US$ 9.7 billion. This was caused by an accounting adjustment called “impairment” – in the case of Petrobras, an exercise in distant assumptions of the company’s reality, in simple terms –  also shows that the company keeps all its positive aspects intact.

Differently from most major oil companies, Petrobras’ revenue has no connection to the international oil price. It is based on the domestic market fuel prices. Today, the estimate is equivalent to a barrel price between US$ 70.00 and US$ 80.00.

Another indicator is the downward movement of spending on royalties and special participations, due to their calculations’ link to the barrel price. There was also an increase in Petrobras’ margin in the import and resale of fuels in the domestic market.

On the other hand, the devaluation of the Real against the US dollar, acting in reverse, impaired results due to the increase of:
– The cost based on US dollars of royalties and special participations. (Note that royalties suffer a positive effect with the fall in oil prices, and negative effect with the devaluation of the Real);
– The interest expense on loans made in foreign currency;
– The total debt in foreign currency, with major accounting effects (non-financial) in the result.

Furthermore, considering the positive and negative effects, the gross profit of the company presented a 23% growth in 2015, in comparison to 2014, from US$ 22.5 billion to US$ 27.6 billion. This means that, among other things, the positive effect of the fall of barrel price has exceeded the negative effect of exchange rate changes.

However, in the 4th quarter of 2015 there was an accounting adjustment — or impairment– that amounted to US$ 13.7 billion, nullifying any possibility of profit in 2015. It’s Important to keep in mind that none of the major oil companies, such as Shell, BP, Chevron, etc., recorded losses, even though they have much more reason for that than Petrobras. They understood that this kind of record has no compliance due to the volatility of the international oil price.

That impairment did not affect the company’s financial situation and cash status, which remained at their highest level, similar to where they were at the end of the 3rd quarter (US$ 28 billion).

The President of Petrobras, Mr. Aldemir Bendine, in an interview shortly after the announcement of the results, recognized that “the company has enough cash up to the end of 2017”. So there is no reason to discuss selling assets for cash.

Shareholders’ equity is the most positive aspect in the company overview. In a recent statement, the General Director of ANP (National Oil and Gas Agency), Magda Chambriard, reported that Petrobras’ total oil reserves reached 40 billion barrels.

This is a unique situation, which shows the company’s future prospects supported by the existence of a trained workforce, technology and appropriate equipment to extract pre-salt oil at a highly competitive cost; the lower cost between the “majors”, in fact.

This alone has led China Development Bank to offer credit lines for Petrobras based on a future oil supply commitment. The new Petrobras business plan, even after cuts, foresees investments of US$ 20 billion per year over the next five years.


And now, here comes the other side of the coin: In the same day, March 21st, Petrobras announced the conclusion of the drilling and evaluation of a new well in the field of Libra – Pre-salt Santos Basin – where they found the largest oil column discovered by the consortium to date, with a density of 301 meters.

The Libra consortium is formed by Petrobras (operator, with 40%), Shell (20%), Total (20%), CNPC (10%) and CNOOC (10%), with Pre-salt Petróleo SA (PPSA) acting as manager of the Production Sharing Contract.


Until the end of this year, many surprises — or not so surprising news — will make 2016 an amazing year. Join SEMCO and be part of it!