Petróleo Brasileiro S.A., better known as Petrobras, is an amazing integrated petroleum multinational and shining titan from Brazil. Controlled by the Brazilian state since its foundation in 1953 under the administration of the late Getúlio Vargas, Petrobras initially was a fully-owned state enterprise until the Brazilian government took the company public in 1997 raising $ 4.32 billion. Similarly, a seasoned equity offering was carried out in 2010 raising a whopping $ 70 billion, a record globally then. Today, after decades of arduous work gaining expertise in the oil sector, the company is responsible for 85% of Brazilian output alone having held a monopoly in both production and refining before that ended in 1997 upon its privatization after signing pertinent agreements with the Brazilian state regulator overseeing the oil industry in Brazil and known as the Brazilian National Agency of Petroleum, Natural Gas and Biofuels. Becoming a full-fledged multinational after the acquisition of PECOM Energía S.A. in 2002 from the late Argentine billionaire Gregorio Pérez-Companc for a price tag of nearly $ 1.2 billion, this transaction singlehandedly added 1.1 billion of proven crude reserves, production of 180 thousand barrels of oil equivalent a day and operations in Argentina, Brazil, Venezuela, Bolivia, Peru and Ecuador comprising upstream, midstream and downstream infrastructure already established in the countries just mentioned. Overall, Petrobras is the second most valuable company in Latin America presently reaching $ 120 billion in market value, a feat only matched right at the moment by Banco BTG Pactual S.A., both from Brazil. In similar fashion, Petrobras has 17 billion barrels of proven petroleum reserves reaching close to 25 billion barrels when including probable crude reserves. Roughly three quarters of the output comes from off-shore fields in the Atlantic Ocean including the ones in the Campos Basin and the newly discovered ones in the Santos Basin containing major promising fields such as the Tupi, Libra, Lapa and the Júpiter oil reservoirs. Accordingly, the company produced 2.2 million barrels a day last year and up to nearly 3 million barrels of oil equivalent a day when including natural gas output. Deposits in the Santos Basin in particular show tremendous promise for the future ahead. Buried beneath the ocean and under a thick layer of salt and rock, Petrobras never rests pursuing challenges to increase synergies at its complex upstream operations while gaining efficiency operating oil platforms and dealing with oil-field service contractors after holding contracts with exemplary companies in the field like Seadrill Limited, a Norwegian multinational trading in Oslo and here in America as an ADR on the NYSE under the ticker symbol (SDRL) that specializes in deep-sea off-shore drilling rigs cunningly utilizing the latest technology developed globally and involving floating as well as semi-submersible marine platforms.
Moreover, important breakthroughs and learning experiences drilling off-shore includes the establishment of the Petrobras 36 Oil Platform back in 1994, the biggest of them all then anywhere in the world. The platform sank after suffering an explosion in 2001 but the environmental impact was minimal accruing just a relatively modest loss from the disaster and subsequent oil spill. Likewise, Petrobras built the Petrobras 52 Oil Platform in 2007 which is currently the biggest of them all in Brazil and the third biggest worldwide. By the same token and shortly afterwards, Petrobras entered into a supply contract with China in 2009 worth $ 10 billion in exchange for 160 thousand barrels of oil equivalent a day to be delivered for a limited time period to the PetroChina Company Limited and the China Petroleum and Chemical Corporation, more commonly known as SINOPEC. On the other hand, in the downstream side of the business, Petrobras presently has 11 petroleum refineries operating in strategic locations across Brazil. In fact, just fairly recently, the company spun-off its gas station business in three stages beginning in 2017 creating a tracking stock for the subsidiary and then exiting the business entirely in 2021 by selling its remaining economic interest in it while rebranding the operation under a different name now known as Vibra Energia S.A. Similarly, Petrobras shares control of its listed petrochemical operation known as Braskem S.A. with the now tarnished Odebrecht engineering clan of Brazil. Nonetheless, Petrobras has the upper hand when it comes to decisions and business strategy at Braskem after holding a larger amount of voting rights. Altogether, the Brazilian government owns roughly 29% of Petrobras’ outstanding share capital while retaining 54% of its voting rights, carefully executing smart decisions at the company while benefiting from it as well by collecting taxes and juicy dividends year in and year out.
Furthermore, Petrobras was implicated in the infamous “Operation Car Wash” corruption scandal that struck Brazil in 2014 after being at its center. In fact, the company spent over a decade awarding contracts in oil-field services at inflated prices in exchange for kickbacks. The single largest company that was involved the most in the scandal was Odebrecht S.A., now known as Novonor S.A., having been renamed after paying hefty penalties settling the case with Brazilian authorities and the US Department of Justice. Petrobras, on the other hand, was a guilty party implicated in the case as well but exonerated entirely after settling with American authorities paying a bulky fine of $ 2.95 billion and then settling the case with the Brazilian government for $ 853 million in penalties. Petrobras also settled the case with the Vanguard Group Corporation, the American mutual fund management giant and single largest institutional investor in the integrated petroleum multinational, for an undisclosed amount. Accordingly, corrective measures have being taken by the top brass of the state-controlled petroleum titan to behave ethically at all times in sensitive matters related to the oil industry. Overall, Petrobras has addressed the issue appropriately to prevent excesses and abuse of obscure business practices from that point going forward. All told, Petrobras exited the whole affair amicably and reinvigorated from it to continue its ongoing operations throughout Latin America with prudence and efficiency presently being among the top 15 oil producing entities globally by all metrics considered including actual reserves, output and operating cash flow generating ability.
Considering its finances, Petrobras sits atop one of the biggest, healthy and profitable for-profit organizations participating in the oil sector worldwide. Sitting on a cash pile of $ 10.38 billion when including cash equivalents, Petrobras reported around $ 20 billion in profits in its last fiscal year netted from total consolidated sales of nearly $ 90 billion. Attaining a profit margin of 22% and price/earnings multiple of exactly 6 at the present time, I think the stock is a very (STRONG BUY) right this minute. In fact, the company reports strong free cash flow to firm from solid operations in the oil industry having a book value exceeding total debt at $ 75 billion. Likewise, total debt on its books stands at roughly $ 60 billion while total assets comprise close to $ 240 billion. PPE or Property, Plant and Equipment stands at $ 180.4 billion while CapEx or Capital Expenditures amounted to $ 20.3 billion in its last fiscal year alone, a very healthy level of this metric in the oil industry. Similarly, Petrobras achieves a debt-to-equity ratio of 0.68 which implies total shareholders’ equity surpassing total debt in its current operations translating into the company not being overly leveraged or not heavily leveraged and as a result, possessing a very solvent position. In addition, Petrobras is a constituent member of the local Brazilian stock market index known as the IBOVESPA as well as the regional stock market index known as the S&P Latin America 40. For those interested, the stock trades here as an ADR on the NYSE under the ticker symbol (PBR). All of the previous figures were gathered from Yahoo!Finance.
To conclude, Petrobras is a state-controlled petroleum titan shining in Brazil. Filling the government coffers each and every year since its foundation in the early 1950s, the company is run with utmost professionalism by Brazilian nationals carefully handpicked by the state itself with ethical considerations after the “Operation Car Wash” corruption scandal. Today, roughly about a decade after the affair, Petrobras is developing an impeccable track-record of growth and efficiency prospecting for oil off-shore in deep waters and harsh terrain making a difficult task a hand a very lucrative opportunity to enrich both the country and its nationals, building welfare along the way for Brazilians to enjoy and prosper from it.