We have written several times before about Petrobras government interventions, its disappointing earnings, the gloomy prospects for this year, how it has a hard time meeting its production goals, etc… but we have also written that the company might reach US$1 trillion in market cap and become the largest oil company in the world sometime in the future.
According to Tony Daltorio’s article at the Motley fool, “the Brazilian government … has increasingly interfered in the day-to-day operations of the company [Petrobras, NYSE: PBR], making it a not-so-great investment.”
But he says Petrobras is not alone.
“The same can also be said of Brazil’s other premier natural resource company, Vale (NYSE: VALE). Its prior CEO was forced out … government is trying to force Vale away from just concentrating on iron ore production and more toward building steel mills so that the country does not have to import so much steel.”
The author is correct is stating that Brazilian government interference hurts US-based ETF players, as Vale and Petrobras stocks combined make up nearly 20% of the most popular Brazil ETF (NYSE: EWZ).
The government’s new policy of requiring that up to 65% of the content in the national oil industry must be local might have a negative effect, says Daltorio. The requirement is non-sense considering the country simply lacks the manufacturing capacity to meet the requirement to build ships and equipment in a timely and cost-efficient manner. “This burden will likely only add to the recent poor results for the company.”
The company’s ability to increase oil production… according to Daltorio:
“Its production in December was 2.72 million barrels of oil a day, a lower figure than December 2010. The company has failed to meet its own internal targets for oil production for the last three years, and that is despite massive investments. Since 2003, the company’s investments into oil production have risen by 280% but actual production has increased by a mere 30%.”
The author finishes the article stating that Petrobras’ oil production forecasts are “not a safe bet at all based on Petrobras’ poor track record on hitting production targets.“