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As the executive manager of Investor Relations , the area which is the principal interface between the company and its stockholders, Economist Theodore Marshall Helms is experiencing a good moment at Petrobras. Leading a team of 48 people responsible for keeping the market informed of Petrobras’ performance and its principal strategies, he frequently details why it makes sense to invest in Petrobras. In fact, the market currently agrees it is worthwhile. The website of Fortune magazine, in an annual listing published in June 2009, recommends Petrobras shares, assuring readers that it is “one of the companies in the best position to grow in the coming years, in view of the recuperation in oil prices and the recent discoveries in the pre-salt province, principally in Tupi, the largest in the last 20 years.” The investment banker, Matthew Simmons, one of the main specialists in energy in the world, was categorical in telling Exame magazine in July that the future of the sector depends on Petrobras, “the only company in a position to lead an increase in global oil production.” In addition, in a ranking published by the consulting organization Ernst and Young this year that took into account the market value of 300 global companies whose stocks had increased the most in the first semester, Petrobras was considered the eighth largest global company, while a ranking published in August by the consulting company Economática placed Petrobras as the fourth largest listed company in the Americas. Helms supplies the details of the company’s performance and what makes it a good investment in the following interview given to Petrobras Magazine.

In general terms, why is it possible to say that investing in Petrobras is worthwhile?
Petrobras possesses a substantial base of proven reserves, calculated today at about 15.08 billion barrels of oil equivalent according to criteria of the Society of Petroleum Engineers. This means assured production for approximately 14 years, without taking into account the recent discoveries in the pre-salt province and the existence of areas still to be explored by the company, both in Brazil and abroad, which we believe will result in an enduring and sustainable increase in production. The company is also the leader in the production, refining, and transportation of oil and oil products in Brazil, its principal market, considered to be very large, relatively new, and in expansion. This scenario guarantees for Petrobras a unique position globally. Whereas the other big companies in the oil and gas sector are still searching for new oil and gas deposits, Petrobras stands out in its capacity to replace reserves and increase production. The company knows exactly where it is going and how to get there. The vision is long-term and clearly stated in the 2009-2013 Business Plan and in Petrobras’ 2020 Strategic Plan.

Geraldo Falcão / Petrobras Image Bank
Petrobras headquarters in Rio de Janeiro

Do investors worldwide recognize Petrobras as a good investment alternative?
Yes. This recognition is growing every day. About five years ago, there was a certain degree of caution about investing in Brazil and consequently in Brazilian companies. The economic stability achieved by the nation and the successful macroeconomic policies have resulted in recognition by the risk classification agencies, which granted Brazil investment grade ratings, thereby increasing the demand for investments in the country and in Brazilian companies. These evaluations were extremely positive for the company. Also positive is the fact that investment decisions imply evaluation by investors of the resources possessed by the company in question and its plans for growth. They ally information provided by the company, assumptions they form regarding the market and the economy, and projections of the company’s cash flow in order to better evaluate the market value of the enterprise. This vision of the future generates impacts on the company in the present. Petrobras was clear and correct in providing investors with the information they needed to prepare their analyses and evaluations. The result of all this was that the company’s universe of investors has increased significantly and, today, Petrobras is regarded as one of the most important energy companies in the world, which is transparent and which combines profitability with social and environmental responsibility. This reputation means that whoever purchases Petrobras stock knows exactly why he is investing in the company.

André Valentim / Petrobras Image Bank
In 2020 Petrobras expects to become one of the biggest producers and exporters of oil in the world

In terms of performance, it isn’t an exaggeration to say that few companies in the world equal Petrobras…
Undoubtedly. Petrobras closed 2008 with a production of 2.4 million barrels of oil equivalent in Brazil and abroad and an impressive growth rate of 4%, achievements matched by few companies worldwide in recent years. In the same year, the company reported a record profit of 33 billion reais, 53.3% greater than that reported in 2007. Throughout 2009, its market value has increased 46%, reaching 300 billion reais, the second largest in the global oil and gas market. This situation is expected to improve, since Petrobras should grow considerably when production on a commercial scale begins in the pre-salt province. Because of this, Petrobras expects to produce 3.6 million barrels of oil equivalent per day in 2013 and 5.7 million boed in 2020, becoming one of the biggest producers and exporters of oil in the world. The market will be aware of this potential in determining the value of the company’s stock.

Geraldo Falcão / Petrobras Image Bank
Petrobras can benefit from the expansion of the natural gas market in Brazil

The company also enjoys important competitive advantages compared to its peers by operating, for example, in the entire energy chain and by possessing its own technological know-how for exploration and production in deep and ultradeep waters, doesn’t it?
The competitive advantages are even greater. Petrobras operates in the entire energy chain, maintaining a leading position in the production, refining, and transportation markets for oil and oil products in Brazil, and having competitive costs as a result of the integration of large scale activities and operations. Throughout its existence, by exploring and producing oil and gas in the sea, the company has acquired the knowhow and its own technology to operate in deep and ultra-deep waters and today is capable of exploring and producing at depths of more than 3,000 meters. It has a significant, increasing base of reserves, as has been mentioned. With respect to natural gas, as Petrobras operates in the majority of the segments of this market in Brazil and occupies a strategic position, it will be able to benefit from the potential increase in demand in Brazil for this product.

Isn’t it true that Petrobras is recognized internationally as a sustainable enterprise, with operations that, besides being economically viable, are ecologically correct and socially just?
Yes. This is a result of the long-term vision expressed in the current Petrobras Strategic Plan. According to this document, the principal pillars supporting the company’s vision of the future are sustainability and growth in a lucrative and integrated form. The document establishes that by 2020 the company should combine social and environmental responsibility with profitability, commitment to sustainable development, recognition as a world benchmark in biofuels, a strong international presence, and excellence in operations, management, human resources, and technology in order to become one of the five biggest integrated energy companies in the world, as well as the company preferred by all its stakeholders. As proof of this recognition, it is worth highlighting that the company has been included, for the third consecutive year, in the Dow Jones Sustainability World Index, the most important global index of sustainability, which influences investor decisions worldwide. Petrobras was also included in the Management and Excellence (M&E) ranking in 2008 as the most sustainable oil company in the world and a global benchmark in ethics and sustainability, considering 387 international indicators. It is also worth mentioning that Petrobras is a signatory to the Global Compact and therefore follows and divulges its principles. In addition, it strives for excellence in Health, Safety, and the Environment. In 2008, for example, the company invested R$ 1.97 billion in projects related to the environment alone.

With regard to transparency, Petrobras has a favorable history, doesn’t it?
This is true. The respect for our stockholders, who are also the owners of Petrobras, presupposes this transparency. The stockholders have the right to receive information in a transparent form regarding the company’s activities and their recognition of this transparency has a positive effect on the price of Petrobras shares. Thanks to this Petrobras attitude, the company was considered a benchmark in transparency among the companies in the oil and gas sector in a report by the Transparência Internacional organization published in 2008. The financial and managerial reports of Petrobras are submitted to the regulating agencies CVM and SEC and are in conformity with Brazilian corporate legislation and the criteria of the USGAAP. Petrobras is a member of the Extractive Industries Transparency Initiative, a group gathering governments, international organizations, investors, companies, and civil society groups to improve governance related to mineral resources in countries worldwide and to promote transparency in the rendering of accounts relative to the oil, gas, and mining sectors. In addition, the Ethics Commission and General Ombudsman strengthen the promotion of transparency at Petrobras.

Rogério Reis / Banco de Imagens Petrobras
Recognition of the Petrobras’ transparency has a positive impact on share price

Did this transparency help Petrobras in the dissemination to the stakeholders of its 2009-2013 Business Plan, which, despite the world crisis, foresees investments of US$ 174 .4 billion and the capturing of resources in Brazil and abroad?
It helped a lot. In a period when the global macroeconomic scenario was replete with great uncertainties and the price of a barrel of oil had fallen in the international market, we were clear in telling our stakeholders that our goal was to invest US$ 174.4 billion in Brazil and abroad in five years, with US$ 29 billion destined to projects in the Pre-Salt Province and, as this amount was in excess of ur projected cash flow, we would be seeking financing assuming an average reference price of US$ 42 for a barrel of oil. In any case, we would always attempt to negotiate price reductions with our suppliers. Thanks to our coherent explanations, which included analyses of the increases in the global production of oil and gas, exchange rates, price estimates of oil and oil products, and financing possibilities and rates of return, our investment plan was well received by the market.

Rogério Reis / Petrobras Image Bank
The market received Petrobras’ foreign fundraising well

Will Petrobras have the funds to finance the projects in its 2009-2013 Business Plan?
From January to May, 2009, Petrobras raised 31 billion dollars – 12.5 billion from the Banco Nacional de Desenvolvimento Econômico e Social (BNDES), 10 billion from the Chinese Development Bank, 6.5 billion from syndicated international banks, and 2 billion from the United States Import Export Bank. Thanks to these amounts, all the projects foreseen in the current Petrobras Business Plan will be financed if the price of a barrel of oil remains at around 65 dollars, on average, until 2013. If the price falls to 45 dollars, the plan will be financed for two years and it will be necessary to raise additional funds.

Will the risk factor in the Petrobras debt discourage new investors?
No. The most important risk classifying agencies in the world confirm this. All the agencies which evaluated Petrobras have granted the company an investment risk grade. And the grade was maintained even after the company announced that it intended to increase its investments. Fitch Ratings announced the maintenance of the Petrobras level of debt risk in foreign currency at BBB. Moody’s Investor Services also maintained the Petrobras level of debt risk in foreign currency at Baa1. Standard & Poor’s Rating Services revised the Petrobras level of debt risk in foreign currency from BBB to BBB-, with a stable perspective, which was done as a result of the low price of a barrel of oil, which implies a lower cash flow for the company, but maintained the investment grade. In their evaluations, the agencies highlighted the leadership of Petrobras in offshore exploration in deep and ultra-deep waters, the new discoveries in the pre-salt province, and the improvement in Petrobras governance. Moody’s Investor Services even emphasized the increased degree of transparency at Petrobras and the increased need for financing allied to the access to financing sources and the expectation of a considerable increase in oil and natural gas production, and the guarantee of the company’s long-term sustainability.

©istockphoto.com / René Mansi
Partnerships with other companies enable Petrobras to share risks, technology, and capital needs

Can we say that, as Petrobras survived the year 2008 with tranquility despite the global economic crisis, we will witness more favorable times in the medium term?
In 2008, a year of elevated volatility in the oil market and great instability in the global economy, Petrobras presented positive results. The company’s performance also reaffirmed the importance of the Brazilian market for its business and its wise policy of following long-term tendencies of oil and diesel prices in the international market without transferring these price fluctuations to the domestic market. This has provided greater stability in the generation of the company’s cash flow. Sales increased 26% in comparison to 2007, totaling 215 billion reais. The operational generation of cash, that is, the EBITDA, was also 14% higher than that in the 2007 financial year, recording 57.170 billion reais. From here on, in the medium and long terms, with the start of production in the pre-salt province, where the largest oil accumulation discovered in the present century is located, a much more favorable situation will ensue. If costs are high, partnerships with other companies will permit Petrobras to share risks, capital needs, and technology. On the other hand, the profits will allow Petrobras to continue expansion and to stimulate the development of Brazil and the countries in which Petrobras operates.