Petrobras (PBR): "We don't give a crap about posting a profit"

Your author read this report this morning from Mercopress and his memory was jolted. Here's how the note kicks off:

Tuesday, July 26th 2011 - 13:29 UTC

Petrobras plans to double oil output by 2015 and exit debt market in 10 years

Brazil’s government managed Petrobras said its plan to more than double oil output will boost cash flow and eliminate the need to tap debt markets after about 10 years. Profits from oil sales will be enough to cover operating and debt costs starting in about 10 years, said Chief Financial Officer Almir Barbassa.

For sure that sounds smart cos going overboard with debt and all that isn't a good thing, correct Mr. Obama? But the flipside to that is a Petrobras (PBR) that's not going to care much about bottom line profits while it gets its burden lowered. Which reminded me of these words posted in 2008 and then August of 2009 by yours truly:

"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 big oil strikes your fancy."

The original piece was entitled, "Petrobras: Great for Brazil, not so great for shareholders". So check how PBR has done in relation to big world oil plays like XOM and COP on that chart above and consider that a dumbass spoutmouth blogger got it right while the dude in NYC that got his new Porsche funded by you was insisting on the utter future crunchy wonderfulness of PBR all that time.  And DYO freakin' DD one time.

Petrobras (PBR): And now they begin to believe me

On September 7th 2008, Petrobras stood at U$44.44 a share and your humble correspondent wrote this article called "Petrobras: Great for Brazil, not so great for shareholders" that finished up with this conclusion:

"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 big oil strikes your fancy."

Cut to August 31st 2009, a share price 10% lower than a year ago at U$39.64, and the latest news from PBR.

Aug. 31 (Bloomberg) -- Brazilian President Luiz Inacio Lula da Silva unveiled a plan to increase state control of the oil industry, proposing regulations to help the country become one of the world’s 10 largest oil-producing nations.

....................

Petrobras common shares tumbled the most in six months as the company said it may sell new stock to help finance its exploration. The plan raised concern among some investors that the government is seeking to increase its stake at the expense of minority shareholders.

Any further questions?

Trading Post (big and charty edition)

Getting snarky at Rick! van Alphabet would be just too damned easy today after the way he awarded himself one point one eight five million stock options at $5.25 on Friday. You do realize this comes out of the quarterly expenses, yeah? If you're a shareholder in this never-to-mine-an-ounce-ever company you're paying for his legal theft through your back pocket. Anyway, like I said, I'm not going to mention a word about him, his company his trickeries and lies nor point out the pummelling the stock is taking at market today after being pumped to high heaven in New York last week. Not a word.


Let's go with some LatAm names outside of mining that we haven't visited for a while and put a few charts up, too. Now for sure all these things are getting checked back today, but we're taking a slightly wider view just for once. No minutae of intraday.

Telecom Argentina (TEO) down 2.3% at $9.86 TEO has always been my idea of about the best run company on the Merval index. It keeps churning out growth and profit, too. It hasn't done much more than track the general index since the big rebound, but when you're up against foreign behemoths such as Tenaris and Petrobras it has nothing to be ashamed of, really.

Cosan (CZZ) down 14.1% at $5.22. Hey, remember the fool who didn't buy CZZ at $3.85 cos he wanted $3.60 or something? Yeah, that fool tis I. Errar humanum est, but CZZ has made great strides recently. With crude back in the high 60s the buzz is back in the LatAm ethanol business, by the way. We talked a bit about this in the last IKN Weekly.

Ecopetrol (EC) down 4.1% at $22.78. EC is another recent winner in the world of (relatively speaking) bigcap LatAm plays. The company is run well, and that's always good. The Colombian oil patch (not just EC) is quickly turning into a hot story down here, in fact. DYODD.

Petrobras (PBR) down 7.5% at $41.52. Petrobras is everyone's idea of the biggest oil company down here. Well it gets dwarfed by PDVSA, but let's not worry about that one, as PBR is still a big player getting bigger. The rumblings, rumours and positive anticipation is back about the subsalt oil reserves that caused all that hype last year, too.


Finally, a bit of mining. Southern Copper (PCU) down 7.2% at $21.70 and Freeport (FCX) down 7% at $52.90. Both stocks down (along with copper....ahem) but both have had great recent runs. Here's a chart with FCX, PCU and the S&P500 index together but on a shorter timescale than the above charts. This one is just the last two months.
You'll also note I've added the 10 day "Williams %R" as technical analysis to this chart. I don't have a freakin' clue as to what it is but it sounded good on the menu bar so I put it in. Ask Gary or Trend&Value if you want to know more...they care about this guff.

Brazil earnings snippets

Petrobras (PBR) reported a quarterly profit of R$5.82Bn. This is down from the 1q08 R$7.24Bn but just beat out analyst forecasts of R$5.71Bn average. So kind of ok for PBR, but.....

Pao de Azucar (PCAR4.sa) brought hom an excellent quarter of R$94.9m, which beat out the Bloomberg forecast average of three analysts of R$75.8m. The most interesting feature of the number is that Pao de Azucar is Brazil's biggest food retailer and reports strong sales for 1q09. The shares are up slightly in early trading.

As for an angle on this retail sales buoyancy in Brazil, how about are old friend Mercado Libre (MELI)?. Definitely not a recommendation but simply a place where you might want to do further DD.

UPDATE: Bloomie also has a report linked here on Petrobras company comments on its results, with the CFO talking 'cost overhang'. Good background.

Petrobras (PBR): Reiterating a call

Top story on Bloomie's LatAm page today is this one linked here, which tells how Petrobras (PBR) is going on a cost-cutting crusade. Here's how Carlos Caminada and Jeb Blount start their report:

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Jan. 26 (Bloomberg) -- Petroleo Brasileiro SA, Brazil’s state-controlled oil company, will seek to cut costs by as much as $4 billion annually to prevent debt from swelling after the company announced a $174.4 billion five-year investment plan.

Reducing costs by that amount in the next two years will be a “big challenge,” Chief Financial Officer Almir Barbassa said today at an event in Rio de Janeiro. Petrobras will seek to yada yada continues here

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So this gives a nice opportunity to point out what woz writ by your humble correspendent in this note way back on September 5th (which, as a sidebar, also noted the hundreds of billions of dollars PBR would need to invest going forward):

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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.

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So let's see how PBR has got on versus CVX, COP and XOM since that time:

Nuff said.

Bottom line: When you see PBR "cutting costs", one of those will be not leaving money on the bottom line, too. To risk labouring the point, if you have a state-run megacompany and you have the choice between taking out debt and paying out dividends to foreign investors, the decision takes about half a second to make. IKN is still neutral PBR.



PS: Check out this five year comparative between Brazil's Vale (RIO) and Petrobras. Another eye-opener. Works just as well on a six month period, too. Think about it.

Codelco to invest U$2Bn in 2009

This note from BN Americas really rams home the difference between a nationalized company and a private company. Chile's Codelco, the world's largest copper producer, will match 2008 capex next year to the tune of U$2Bn. In the words of big cheese José Pablo Arellano;

"The investment plan is comparable to the one last year.....We expect to go ahead with a vigorous investment plan next year in spite of this difficult situation"

Or in other words, while the rest of the sector tucks, trims, cuts and slashes spending, Codelco rolls on as usual. Y'see, the whole mindset of a country-controlled company is different. Bottom line profits come down the list of priorities (as long as the company adds to GDP and pays its tax and royalty bills the State won't moan so very much). In the case of Codelco it may be a hypothetical for you, dear investor. However here's an extract from something I wrote in this post back in early September about Petrobras:

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.

On rude awakening later.....


.....so with Petrobras due to spend $20Bn or so in Capex next year, don't expect the company to leave much for dividends next year. Not with oil at $50, anyway.

But the funniest thing now is listening to the 15,000 or so professional economists registered in the USA. Due to the total failure of everything they've taught and been taught for the last 15 years, suddenly nationalization is good, beneficial and acceptable. Have you noted that phrase "counter-cyclical" being used more often in polite society, too? So expect Chile's Codelco to get plenty of praise for forging ahead with its expansion plans. And expect analysts to concur with PBR's vision for adding GDP growth to its parent, Brazil. But don't expect a single good word for Venezuela's PdVSA or Bolivia's YPFB or Ecuador's PetroEcuador. I mean...waddya think we are....a buncha of commie bedwetters?

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.