RIO DE JANEIRO--Shares of Brazilian state-run oil company
Petroleo Brasileiro SA fell to an eight-year low Monday as investor
frustration with falling oil output, heavy spending and government
meddling reached a boiling point.
Petrobras shares closed 5.8% lower at 13.85 Brazilian reais
($5.69), the lowest close since BRL13.62 on July 29, 2005.
Petrobras has lost about a quarter of its value over the past 12
months. The company declined to comment on the downturn.
The stunning fall from grace for Petrobras, once one of the
world's most-valuable companies after discovering billions of
barrels of crude oil off Brazil's coast, has far outpaced declines
seen among the firm's peers.
Shares of BG Group, which is a partner with Petrobras in several
offshore Brazil fields, are down 8.7% over the past year on reduced
growth forecasts. Royal Dutch Shell, also a Petrobras partner, is
down 6.9%, with the firm saying it will sell assets to shore up its
balance sheet. Chevron Corp. shares are also down 4.3% over the
past year, while Exxon Mobil shares are up 0.5%.
Like Petrobras, other global oil companies are spending more and
more cash to tap oil deposits that are increasingly hard to reach.
But Petrobras is now caught in a volatile international drama that
has exacerbated investor disappointment over government meddling
and the firm's failure to deliver on its potential, investors and
analysts said.
Brazil and Petrobras are both weathering a "perfect storm"
brought on by poor policies, slowing economic growth in China and
the end to global easy money as the U.S. Federal Reserve moves to
reduce its stimulus measures, said Oliver Leyland, portfolio
manager at Mirae Asset Global Investments in New York.
The government is struggling with anemic growth despite heavy
spending that has led to a widening budget deficit. Government
spending has also played an important role in high inflation, which
has remained above the government's 4.5% target since 2009.
Brazil's effort to control inflation is also at the heart of one
of the biggest concerns surrounding Petrobras: domestic fuel
prices. The government, which is also Petrobras's controlling
shareholder, hasn't allowed Petrobras to raise local gasoline and
fuel prices to cover losses on expensive imports of the two
fuels.
"Petrobras is poorly managed and has become a tool for social
policies," said Rogerio Freitas, who manages $100 million at
Rio-based Teorica Investimentos, of the cloud hanging over the
company.
The outlook for fuel-price hikes remains gloomy because of the
effect on inflation, analysts and economists said. President Dilma
Rousseff is expected to seek re-election later this year and may be
unwilling to grant higher gasoline and diesel prices after her
administration failed to deliver on last year's promise to reduce
inflation.
The disconnect between local and international fuel prices has
added to worries about a steady decline in crude oil production
despite one of the corporate world's largest investment plans at
$237 billion through 2017. Petrobras has had to borrow huge sums of
cash to finance its investments because of the lost revenue from
fuel sales.
Petrobras installed nine platforms in 2013 and expects fresh
output from the new units to add to production during 2014. But
investors noted that output from the new fields, dubbed the presalt
because the offshore oil was found trapped under a thick layer of
salt miles beneath the sea, has just been enough to offset natural
declines in mature fields that account for more than 85% of
Brazil's crude output.
"Petrobras is pedaling quite hard to stand still, which is not a
great scenario," said Mr. Leyland of Mirae.
Increased oil production would help Petrobras make up some of
the losses from fuel imports, but significant increases in output
from the presalt fields aren't expected until 2017 or later,
investors said.
"What's most important today isn't an increase in production,
but rather the questions surrounding fuel prices," said Erico
Argolo, partner at Rio de Janeiro-based fund manager Bogari
Capital. Despite few signs that higher fuel prices are in the
making, Bogari is studying Petrobras shares for the firm's
portfolio of about $250 million because they're starting to appear
attractive, Mr. Argolo said.
But other investors see little room for Petrobras shares to rise
under the current scenario, despite the firm's nearly 17 billion
barrels of oil reserves.
"I need to see changes in the policies," said Mr. Freitas of
Teorica Investimentos. "If the policies don't change, then maybe
(the share) price at this level is the new normal for the
company."
Write to Jeff Fick at jeff.fick@wsj.com
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