IKN

a plague o both your houses

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.

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