Petrobras (PBR): great for Brazil, not so great for shareholders

Away from this blog over the last couple of days I've been looking at Petrobras (PBR), and there are some conclusions we can draw from looking at one simple ratio chart.

First, though, the basic price chart. Here it is from 2007 to date.....

.....and if I were of the technical analysis ilk, I would have drawn in all sorts of lines and arrows and channels and support points that have all been broken recently. I'm sure you can paint them in with your mind's eye anyway, so there's no labouring the point here. As it is, I've left the uber-basic 200dma to guide. But now comes a different chart that shows PBR in ratio to the WTI crude per barrel, and I've written a couple of observations straight on to the chart.

• PBR was flavour of the year in 2007. In the investment world's perception it moved from relative obscurity to join the pantheon of big oil names, and we can see that on the chart the second half of 2007 saw PBR giving impressive leverage to WTI, its ratio moving from a low of 0.37 to a high of 0.62.

• Then came a period when although PBR's share price still moved up, it was much more in lockstep with the rise in oil. It should be pointed out here that the high point of the PBR:WTI ratio came in February, while the share price peaked much later in mid-May when the Arjun-factor pushed WTI to $147/bbl.

• Next, the May to July 2008 period was brutal, as the flipside of the 2007 leverage coin showed itself and PBR's ratio to WTI dropped sharply.

• The final phase is the one we are in today, with PBR fairly rangebound compared to WTI. The word I use on the chart is "mature", as nowadays the public image of PBR is one of the big oil boys (be that correct or not).

Regulars to the blog will know that I never bought into the hype surrounding PBR, and there are plenty of previous posts that stand as evidence (when the hype machine was at full speed, this humble corner of cyberpace was even featured in the mighty London FT in this note that says "One blogger offers the response: short Petrobras."). Now that PBR has blown off the hype and found a steadier ratio against WTI, I might take it a bit more seriously in the future. However, the Steve Jobs-like UPOD (under promise over deliver) style that Wall St praises is turned on its head in Brazilian business. It's more like OPUD in their world, and the overexaggerated claims for Tupi, Carioca still need to be bumped down a few notches. Up to just a couple of months ago, the image sold was one of PBR only having to stick a pipe into the seabed and out pours 30 squillion barrels of ready-processed lead free fuel. Sure the oil is there (nobody knows exactly how much, but hey...who's counting?) but opex will be high and capex on this project will be simply enormous; we're talking in the hundreds of billions of dollars to get this thing rolling.

It's at this point the plain, boring, simple fact that Petrobras is a state run company needs emphasizing. Bottom line results are not the be-all-and-end-all of PBR's corporate philosophy. Never have been and never will be. Do you honestly believe that the company will continue to pay enormous dividends to foreign shareholders while at the same time taking out massive debt lines to pay for the capex? If so, you are in for a rude awakening.

So I'm still neutral on Petrobras stock. I'm reasonably bullish on the company and what it will do for Brazil in the long term future, but because shareholders are not the raison d'etre of PBR there's no reason why you or I should prefer it over CVX, COP, XOM or whatever other bigoil takes your fancy.