We are maintaining our Neutral stance on the Brazilian state-run
energy giant Petrobras, reflecting a balanced risk/reward profile.
Going forward, the main growth driver will likely be Petrobras' aim
to place itself among the top five oil companies in the world by
2030. We also like the company's focus on core assets through the
divestiture of non profitable resources. However, we are concerned
about Petrobras' increased exploration cost. The huge investment
requirements and the possibility of heightened state interference
add to its negatives. Consequently, we expect Petrobras' growth
potential to be restrained.
Headquartered in Rio de Janeiro, Petroleo Brasileiro S.A. (PBR),
or Petrobras S.A., is the largest integrated energy firm in Brazil
and one of the largest in Latin America. The company's activities
include: exploration, exploitation and production of oil from
reservoir wells, shale and other rocks, as well as refining,
processing, trading and transportation of oil and oil products,
natural gas and other fluid hydrocarbons, in addition to other
Petrobras was founded in October 1953 to conduct the Brazilian
government's hydrocarbon activities, which currently holds a 28.7%
stake (and 50.3% voting share) in the company. Its American
Depositary Receipts represent 20.6% of preferred shares and
approximately 21.5% of common shares. The company operates in six
segments: Exploration and Production', Refining, Transportation and
Marketing', Distribution', Gas and Power', Biofuels' and
Exploration and Production (E&P): This segment includes the
company's domestic E&P operations, mostly located in the
offshore Campos Basin, which is Brazil's largest oil region and is
one of the most prolific oil and gas areas in South America. As of
year-end 2013, Petrobras had approximately 16.6 billion barrels of
oil equivalent (BBOE) in proved reserves (as per SPE or Society of
Petroleum Engineers guidelines), representing a marginal increase
from the year ago period. The company's oil and gas production in
2013 averaged 2.5 million barrels of oil equivalent per day
(MMBOE/d), of which more than 91.4% came from its domestic
Refining, Transportation and Marketing: This segment houses the
company's domestic refining, transportation and marketing assets.
Petrobras owns and operates 12 refineries in Brazil with a gross
aggregate capacity of 2.0 million barrels per day (MMBbls/d),
accounting for about 82% of the country's total refining capacity.
Petrobras also operates 3 refineries outside Brazil, with a total
capacity of 1,694 thousand barrels per day (MBbls/d). Approximately
80% of the company's refining feedstock needs are met through
domestic production activities, while the rest are met through
imports. Petrobras is in the process of upgrading its refining
assets to enable processing of its own productions, which are
heavier in nature. The company owns a network of marketing centers,
storage facilities, pipelines and shipping vessels to transport
crude oil and refined products to the markets.
Distribution: This segment is engaged in the distribution of oil
products, fuel alcohol, and natural gas to retail, commercial, and
industrial customers throughout Brazil. Currently, Petrobras has a
sales network of more than 7,000 retail service stations in Brazil,
all under the BR' brand. The company's retail network accounts for
approximately 20% of the total number of service stations in
Gas and Power: The Gas and Power' segment is engaged in gas
transmission and distribution, electric power generation using
natural gas and renewable energy sources and biofuels operations in
Brazil. Petrobras has a total of 7,028 megawatts (MW) of installed
capacity. The company's natural gas transportation assets comprise
more than 9,000 miles of gas pipelines, including the Brazilian
side of the Bolivia-Brazil pipeline.
Biofuels: The unit deals with renewable energy programs,
including biodiesel, agricultural supplies, vegetable oil
extraction and ethanol. Petrobras provides for more than 10% of
Brazil's biodiesel and also acts as a market catalyst by securing
and blending biodiesel supplies and supplying these to smaller
distributors in addition to the company's own service stations.
Additionally, Petrobras is an active player in the growing ethanol
industry through production, transportation, distribution,
wholesale and export, and by stimulating improvements in product
International: This segment includes all of the company's
activities outside Brazil, including exploration and production,
refining, distribution, and natural gas and power. Petrobras has
operations in a number of different countries outside Brazil,
primarily in South America, the U.S., Gulf of Mexico, and West
Petroleo Brasileiro S.A. ADR C (PBR): Read the Full
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