Petrobras: The Oil Giant
In 2006, Brazil’s economic dynamic changed completely. Off the coast, but still in Brazilian waters, the largest deposit of oil was discovered in what has been called the pre-salt layer, and Brazil’s oil (and energy) company, Petrobras is leading the way in discovering and recovering the black gold.
To accurately portray the hold that Petrobras has on the Brazilian energy and petroleum markets is nearly impossible. In the Pre-Salt layer alone, it has complete favoritism in discovering and fracking the new deposits. While other companies like Chevron and British Petroleum have the capability to work in the Pre-Salt layer, it is only with the approval of Petrobras that they are allowed to do so.
On Wednesday, May 15, we met Carlos Henrique Dumortout Castro, a business consultant with the oil giant. Castro and Petrobras are currently pumping out 311,000 barrels of oil a day through the Pre-Salt layer and by the end of 2020 they predict the massive oil field will produce close to 2 million barrels per day.
Although the Brazilian government gives Petrobras preference in the Pre-Salt layer, Castro sees this as a “big mistake by the government”. Even though the Brazilian federal government controls the company, it does not mean Petrobras always agrees with the legislative policy it produces.
The current party in power, the Workers party, aims to grow the Brazilian domestic markets and job force without much consideration to the global impact, but Castro, and some others within Petrobras believe that this restricts the immense potential that a free and open market could hold.
“Free market is the best because you have more chances to discover,” said Castro.
He sees the Workers Party’s initiatives as counterproductive to the big picture, because it restricts competition, which allows more oil finds, and thus creates massive amounts of reserves of oil, but no revenue, he said.
“If you have to do something, do it today, it may not be there tomorrow.”
Petrobras began in Brazil as an oil monopoly but lost its monopoly status in 2002 with the Oil Law, which allowed other companies to work in Brazil. It is currently the fifth largest oil company in the world, in terms of oil and gas production, and they are growing.
Roughly every three months Brazilian laborers in places like Angra Dos Reis are building this year new oilrigs and platforms.
In the past 14 months, Petrobras has discovered 53 sources of oil in Brazil, a 64% success rate, double the industry expectations for oil discoveries. Castro associates this incredibly high success to knowledge of the Pre-Salt and Brazilian areas, giving Petrobras the edge against competitors in its own backyard. In fact, Petrobras and the Brazilian government are currently entering their 21st year with a Reserve Replacement Ratio of 103%, meaning they are finding more oil than they are using, a staggering statistic in the today’s oil consumption markets.
There is truly no way to comprehend the relationship between the Brazilian government and Petrobras in terms of American business. The Brazilian government holds the largest share in the company, 47%, with the rest of the investment carried in domestic or international trade. Petrobras is rated on the NYSE and is currently the 6th most active stock, says Castro.
This unique relationship with the government requires a lot of give and take. It allows the company to move freely through different discoveries and much more efficiently than others in the vastly bureaucratic country, however it is also limited by the state investment as well.
“If we ask for money, it is easy, if we try to raise gas prices, it is extremely difficult,” Castro joked.