Petrobras seems to be banking on the bull case for buying its stock. Despite the investment risks, it has upsized its already huge offering to as much as $79 billion. The Brazilian oil giant is hoping enough investors really think it can deliver on its plans.
Over the past year Brazil’s government has given shareholders plenty of reason to view the glass as half empty. Brasilia foisted $74 billion of not very profitable refinery investment on Petrobras over the next five years. And the government is overcharging the company for 5 billion barrels of new oil reserves, in return for which it is collecting $43 billion of stock.
A looming shift in oil supply heralds significant changes for two industries. Traditional crude output is forecast to plateau over the next five years with lighter liquids providing the bulk of supply growth instead. This should lower costs for chemical producers. It might also be a fresh ailment for just-recovering airlines.
Old-style oil is getting harder to find. Production growth should grind to a halt by 2015, according to Cambridge Energy Research Associates. From then, any extra supply will come from natural gas liquids and condensates, which were once discarded by oil producers.
Airgas shareholders have decided whence the hot air was blowing. By voting for three directors nominated by predator Air Products, ousting the Airgas chief executive from the board and agreeing to move up the next shareholder meeting, they rebuffed fishy incumbent claims that the firm is worth more alone.
Directors may scramble to the courts but their moral authority has been undermined. With Airgas closer to its clutches, Air Products may be able to remain firmer on its $5.5 billion hostile bid.
Petrobras’ planned $32 billion capital-raising is just the start of an influx of foreign cash that could over-inflate the Brazilian currency and strangle manufacturers. Soaring oil output will add to the problem. Chilean or Norwegian discipline is needed.
Rather than spurring economic development, resource windfalls have often sucked investment from other sectors and stunted industrialization — the so-called Dutch disease, a term coined in the 1970s after revenue from large natural gas finds in the Netherlands ended up constraining the nation’s manufacturers. A resource bonanza also encourages politicians to lock in high government spending, sparking inflation and linking the nation’s fate to commodity prices.
Eike Batista may soon be adding billions to his bank balance. Shares of energy group OGX — the flagship vehicle of Batista, Brazil’s richest man — value its 7 billion-odd shallow water oil reserves at roughly $5 a barrel. That looks a bargain against the $8.51 the government is extracting from Petrobras for deepwater crude. It’s no wonder China’s Sinopec Group and CNOOC are considering buying into assets owned by the company.
A $100 punt on OGX last September would now be worth $180, compared with a meager $80 in national champion Petrobras and $113 in Brazil’s Bovespa stock index. Yet OGX could still be good value for money — especially in the light of Petrobras’ recent deal with the government for new reserves.
– The author is a Reuters Breakingviews columnist. The opinions expressed are his own –
Brazil’s government gouged oil giant Petrobras <PETR4.SA><PBR.N> in its $42 billion transfer of offshore reserves. But at least it seemed to lift some uncertainty. Think again: the contract may allow Brazil to raise the price, regulatory filings suggest. For those worried by state meddling, this is yet another troubling disclosure.
Petrobras is shaping up more like Gazprom than Exxon Mobil. By overpaying for 5 billion barrels of reserves, the Brazilian state-controlled oil group is transferring up to $17 billion of value to the government, whose stake will also rise. The company is looking more like an instrument of the state than a guardian of shareholder interests.
A year after the capitalization plan was first announced, Petrobras shareholders are finally getting some clarity. That earned a relief rally in the company’s beaten-down shares on Thursday. But the news overall isn’t good.
Half a billion dollars is normally sufficient to sway the minds of mortals. But in the case of Potash Corp’s potential sale to BHP Billiton, don’t expect such a big payday to decide the outcome of the deal. The fertilizer miner’s boss Bill Doyle has sat on larger sums before and held tight. With his golden parachute less than 6 percent of the payoff, he has no obvious incentive to shortchange shareholders with a quick flip of the company.
True, even if Potash shareholders go for the BHP deal on offer Doyle would become one of the top corporate earners of the past decade in North America. And it’s hard to imagine that so lucrative a package of stock options as Potash doled out to Doyle was entirely necessary to motivate him over the years.
U.S. coal miners dodged a bullet when Congress ditched cap-and-trade regulation. But they may still be vulnerable. Carbon tax or not, many geriatric coal generators are heading for retirement. And demand from China may not be the silver bullet investors expect.
There’s no denying that a price on carbon would have been grim news. For the first time in years, once-pricey natural gas had been giving cheap coal a run for its money, leading some electric producers to switch to gas. Even a small nudge from a cap-and-trade system could have accelerated the switch to the cleaner burning fuel. Small wonder then that the likes of Peabody and Walter Energy have outperformed the S&P 500 Index by close to 10 percent since lawmakers abandoned the cap-and-trade idea at the end of July.
Peak Oil has lost its leading prophet with the death of Houston banker Matt Simmons. Since many nations refuse to share detailed oil data it may be years before his warnings of ebbing production are vindicated — or discredited. But his crusade for more information on supplies is as urgent as ever.
The founder of Simmons & Co added plenty of gravitas to the “peak oil” movement — which contains more than its share of wing-nuts. His 2005 book “Twilight in the Desert” took on the biggest oil producer of all, Saudi Arabia. Drawing on 200 technical papers, he concluded that the kingdom’s largest oil field Ghawar would soon top out. As a result, oil’s friendly giant would soon start to struggle to keep pace with rising oil demand.