Why Petrobras makes so much profit and what is done with the money

Petrobras’ profit of R$ 44.561 billion in the first quarter of 2022, 3,718% above the result of the first three months of 2021, placed the company as the most profitable in the sector in the period worldwide. The result generated criticism from President Jair Bolsonaro (PL), who associated it with the escalation in fuel prices practiced by the company. But what really explains the record profit?

The order of magnitude of growth is explained, first, because in the first months of 2021 the sector was still heavily affected by the economic crisis caused by the pandemic of the new coronavirus. In that quarter, net income was R$ 1.167 billion. Since then, the price of a barrel of oil on the international market has jumped 67% in comparison.

Even so, there is a trend of improvement in the company’s results in recent years. If in 2015, Petrobras recorded a net loss of BRL 34.8 billion, in 2021, the company had a profit of BRL 106.6 billion.

Industry analysts explain that the numbers are the result of a series of actions taken by the company from 2016 onwards, associated with a favorable short-term situation.

“The first factor is associated with the change in the company’s capital structure policy. Petrobras turned the key a little bit and became a company oriented towards oil exploration and production and exports, precisely for the import parity pricing policy”, says Warren’s head of analysis, Fred Nobre.

In this process, Petrobras started a divestment process of several assets considered non-essential, with the objective of increasing efficiency and also to generate cash, which allowed the company to reduce its indebtedness, from US$ 132.1 billion in 2014 to the current levels. US$ 58.6 billion.

The state-owned company’s flagship became exploration in the pre-salt layer, which is now responsible for more than 75% of what is produced in the country. “The focus on pre-salt assets allowed the company to substantially reduce the cost of extracting oil and gas, as well as increasing the profitability of the capital employed”, says Andre Vidal, head of Oil, Gas and Basic Materials at XP Investimentos.

To give you an idea, while the price of a barrel of oil fluctuates around US$ 110, the cost of producing a barrel in the pre-salt layer for Petrobras is around US$ 5.

Vidal also cites the improvement of the company’s corporate governance, both by external forces, such as the State-Owned Companies Law, of 2016, and internal forces, such as the implementation of the bylaws, after the findings of the Lava Jato operation.

In terms of the scenario, the rise in the international price of the Brent barrel, used as a reference in the oil market, and the appreciation of the real against the dollar, helped boost the company’s results.

In a conference on the results on Friday (6), the president of Petrobras, José Mauro Coelho, attributed the good performance to the rise in oil and gas because of the war in Ukraine, which increased the company’s margin in its exports.

Where does Petrobras’ profit go?

Despite being controlled by the Union, Petrobras’ good results were harshly criticized by President Bolsonaro, who associates the company’s profit with the rise in fuel prices. According to him, Petrobras makes “tens of billions of reais a year at the expense of our Brazilian people”.

“I know you have shareholders. But who are the shareholders? US pension funds. We’re funding fat pensions in the United States. Petrobras, we are at war. Petrobras, do not raise the price of fuel any more. Your profit is rape, it’s absurd. You can’t raise fuel prices anymore”, said the president in a live last Thursday (5).

Andre Vidal, from XP, explains that most of the state-owned company’s profit comes from the exploration and production unit. “In the last four quarters, Petrobras reported consolidated Ebitda of US$ 49.6 billion, of which US$ 45.1 billion was generated in the exploration and production unit – 91% of the total. In other words, it is not the pricing policy for oil products that is responsible for Petrobras’ high profits, but the combination of efficiency in exploration and production with an international environment of high oil prices in the international market,” he says.

For Warren’s Fred Nobre, the president’s criticisms do not hold up. “Of course, citizens are affected by higher fuel prices. But attacking Petrobras and the pricing policy makes no sense,” he says.

“Roughly speaking, Petrobras accounts for about 80% of the fuels we consume here, that is, we still depend on 20% of imports. If Petrobras does not follow a market-oriented pricing logic, other private refiners and fuel importing companies will fail. And you can generate the risk of shortages in some regions of Brazil,” he says.

In addition, he explains, Petrobras’ main shareholder is the Federal Government, so that the company’s good performance is reversed in resources for the government itself.

The Union directly owns 28.67% of Petrobras shares, maintaining control by holding 50.3% of the company’s ordinary shares. It also participates through the National Bank for Economic and Social Development (BNDES), which holds 1.04% of the company, and BNDES Participações, which holds another 6.9%. The data refer to the month of April.

Thus, around R$ 17.76 billion, of the R$ 48.5 billion that the company intends to distribute in dividends, will go to the government. In 2021, of the BRL 106.6 billion that Petrobras made, BRL 37.3 billion was paid to the Union in dividends. All this resource goes to the National Treasury and has no mandatory destination.

“It is essential for the Union that the company remains healthy, that it continues to generate resources and it is up to the Union to make the best use of it. It’s much more fun to sit down and formulate a policy to better use the large dividends that are paid than to rail against the country’s own wealth generation”, says Ilan Arbetman, oil and gas analyst at Ativa Investimentos.

Apart from dividends, in the first quarter of the year alone, R$ 69.9 billion, equivalent to 57% of operating cash generation, were paid in taxes to the Union, states and municipalities. “In this 1st quarter, Petrobras paid 1.5 times the value of its net income in taxes only to the Union, states and municipalities. So, a good result from Petrobras also has repercussions for society as a whole”, said the president of the state company.

Of the remainder that is not distributed to shareholders, the state-owned company established, in its Strategic Plan 2022-2026, the exploration and production area as a priority focus of investment, concentrating 84% of Capex in the period.

In the first quarter of 2022, US$ 1.37 billion was invested in the segment, with approximately 61% in growth. Of this amount, about US$ 500 million went to the development of production in ultra-deep waters in the pre-salt pole of the Santos Basin, US$ 200 million to new projects in deep waters and US$ 100 million to exploratory investments in the pre-salt layer. and post-salt.