Petrobras Shares Slip to Eight-Year Low

By Maria Lopez Conde, Senior Contributing Reporter

SÃO PAULO, BRAZIL – Shares of Brazil’s state-controlled oil giant Petrobras fell to a nearly eight-year low last week amid weak earnings. Petrobras’ shares slipped 6.11 percent on Friday, July 5th, closing at R$13.68. That is the lowest share value for the oil firm’s stock since November 14, 2005 and a far cry from their R$43.66 price in May 2008.

Preferred shares also dropped by 5.08 percent, finishing the day at R$15.15. These negative numbers drove Bovespa to close at a 1.21 percent loss on July 5th, rounding out the week’s five percent tumble for the São Paulo stock exchange.

Market analysts believe a mixture of government announcements combined with Petrobras’ own financial woes are behind the company shares’ continued downward slide.

The government’s indication that it might lower taxes levied on a number of imported products, as suggested by Finance Minister Guido Mantega, in order to ward off inflation as the U.S. dollar continues to rise is said to have had an effect on the falling shares.

The large departure of international investors, as well as Petrobras’ new distribution scheme for dividends were also reflected on the firm’s sluggish performance, according to a report in Valor. Starting at the beginning of this year, the company started offering shareholders a smaller payout in order to be able to afford its pre-salt investments.

Additionally, the government’s decision to require R$15 billion as the minimum bonus for the Libra production site bids is said to have also taken a toll on Petrobras. The government’s requirement was R$5 billion above market expectations.

This decision would require the state-led firm to have at least R$5 billion in its coffers to participate in the pre-salt bidding, a tough ask as Petrobras faces lower earnings, cost-cutting measures and an ambitious investment plan.

Its earnings fell to an eight-year low in February and a month later, the company reaffirmed its plans to invest over R$470 billion until 2017 to fund the expansion of its output capacity. Petrobras is also currently undergoing a drastic cost-cutting plan set to slash between R$5-15 billion in operational costs next year.

“The value of Petrobras’ shares fell, everyone knows, below the reasonable price. The expectation was always of more production, more production, more production… and it was not possible,” said Petrobras chief executive, Maria das Graças Silva Foster on June 21st at an event in São Paulo.

Petrobras is also betting on increasing output, posting its highest pre-salt production ever in May and scheduling to close the year with seven new production units.