Gabrielli, 60, speaks before a Senate investigative committee today following 22 appearances by executives from the company and its vendors, as well as officials from Brazil’s National Petroleum Agency and the head of the tax agency, Otacilio Cartaxo.
Shares of Rio de Janeiro-based Petrobras, as the company is known, have rallied since the day before the investigation began on Aug. 6 after dropping 0.7 percent the previous three months. The world’s sixth-largest company with a market value of $207.7 billion has climbed 62 percent this year in Sao Paulo trading, compared with a 76 percent gain for the benchmark Bovespa index.
“When the process started, we cited it as a potential source of noise that could generate confusion and volatility for the share price,” Emerson Leite, an analyst at Credit Suisse Group AG in Sao Paulo, said in a telephone interview Nov. 5. “It seems to me this risk is ..continue here
much more reduced now.”
The probe into alleged tax evasion and political favoritism lost momentum after the government took control of the investigative committee. Three opposition senators who sit on the 11-member investigative committee walked away from the last session on Oct. 28 in a “sign of protest,” saying the government was denying access to documents.
‘Stage for Petrobras Guests’
Legislators are investigating allegations that the oil company evaded 4.4 billion reais ($2.6 billion) of taxes, overpaid for goods and favored supporters of President Luiz Inacio Lula da Silva when it made charitable donations. Gabrielli denied the charges in a July 14 letter to employees.
Petrobras officials from Antonio Carlos Alvarez Justi, general manager for exploration, production and ocean transportation, to Erardo Gomes Barbosa Filho, executive manager for exploration and production, denied the allegations before the committee.
Alvaro Dias, the opposition senator who called for the probe, said in a Nov. 4 interview that the investigation turned into a “big stage for Petrobras guests.”
“We barely had the chance to go through stage-one of a probe,” Dias said, adding that 65 out of 88 requests for documents and hearings were denied.
Gabrielli said in an internal interview posted Nov. 8 on Petrobras’s “Facts and Data” blog that the probe was “technical,” causing the media to lose interest in coverage.
“The investigation has stopped being headline news; it’s now just like any other investigation,” Gabrielli said yesterday at an event in Rio de Janeiro.
No Harm So Far
The political debate over Petrobras “lost momentum” after the probe focused on technical aspects of contracts, Senator Joao Pedro Goncalves of Lula’s Workers’ Party, the probe committee’s chairman, said in an interview yesterday.
“Petrobras became the biggest winner out of this debate,” Nelson Rodrigues de Matos, an oil analyst at Banco do Brasil SA, in Rio de Janeiro, said in an interview. “All that came up in the congressional probe has not caused any harm to the company so far.” Matos has a “buy” recommendation on the shares.
Gabrielli said in an interview Aug. 3 that the probe could be a “big crisis” for the company. He assigned 40 employees to handle questions related to the investigation, started a blog and hired a public relations firm to help refute the claims.
‘Non-event’
The final report of the committee will be presented in December by Senator Romero Juca, the head of the government coalition in the Senate. Petrobras Chief Financial Officer Almir Barbassa said Aug. 18 that accusations the company evaded taxes had been “resolved” and that he didn’t “expect any additional investigation into the tax issue.”
“The congressional probe was a non-event for me,” said Carlos Eduardo Ramos, who oversees 4 billion reais in shares, including Petrobras, as chief investment officer of BNY Mellon Arx in Rio de Janeiro. “For Petrobras, the main drivers continue to be the outlook for world growth and oil prices.”
Petrobras shares also have been helped by a rise in oil prices and new regulations for the industry in Brazil. Crude prices have rallied 78 percent this year. Oil for December delivery rose $2, or 2.6 percent, to $79.43 a barrel yesterday on the New York Mercantile Exchange.
Government Proposals
The government’s proposed regulatory changes would make Petrobras the sole operator of all the offshore pre-salt oil fields still to be exploited and give the company a minimum 30 percent stake in joint ventures that will be set up to bid for licenses. The government is also selling Petrobras the right to produce 5 billion barrels of oil in offshore areas. Petrobras will issue new shares to pay for the rights.
Lawmakers have proposed more than 700 changes to new oil regulations presented by the government on Aug. 31. Gabrielli said Sept. 18 the proposed changes were minor. Congress starts voting on the bills today, after four committees discussed the government and lawmaker proposals.
“We maintain our view that the government’s proposals are mostly Petrobras-friendly and that potential changes to the text sent to Congress could actually be positive for the company,” Credit Suisse’s Leite, who has an “outperform” rating on Petrobras shares, wrote in a Nov. 3 note to clients.
Petrobras is seeking to increase production to boost cash generation. The company makes an additional $500 million a year for each $1 increase in the price of a barrel of oil. Oil and natural-gas output in Brazil averaged 2.33 million barrels a day in September.
“The story continues to be supported by very robust prospects for production and reserve growth and a constructive environment for oil prices,” Ricardo Cavanagh, the head of Latin American equity research at Raymond James & Associates in Buenos Aires, said in a telephone interview Nov. 5. Cavanagh has a “market perform” rating on Petrobras shares.
Markets Last Week
The benchmark Bovespa index rose 4.7 percent to 64,466.13 last week, led by Vivo Participacoes SA, the largest wireless carrier in Brazil, which climbed 13 percent and Lojas Americanas SA, Brazil’s biggest discount retailer, with a 12 percent gain. Empresa Brasileira de Aeronautica SA, the world’s fourth-largest aircraft maker, had the largest drop with a 3 percent decline.
The yield on the government’s zero-coupon bonds due January 2011 fell 18 basis points, to 10.23 percent, according to Bloomberg Data. Brazil’s real strengthened 2.4 percent to 1.7202 reais per dollar.
The following is a list of events in Brazil this week:
Event Date
FIPE CPI (Weekly) Nov. 10
IBGE IPCA, INPC Indices (Oct.) Nov. 11
Retail Sales (Sept.) Nov. 13
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