Petróleo Brasileiro S.A. (Petrobras) was created in 1953 by Brazilian President Getúlio Vargas, driven by the major, nationalistic slogan "O petróleo é nosso" (The oil is ours). For decades, the company operated as an inefficient, considerable state monopoly, desperately attempting to reduce Brazil's reliance on imported foreign oil. Because Brazil lacked considerable, easily accessible onshore oil fields (like Texas or Saudi Arabia) Petrobras was forced to drill in the complex, dangerous deep waters of the Atlantic Ocean, forcing the company to develop some of the most advanced, marine engineering capabilities on earth.
The Pre-Salt Discovery (The Substantial Windfall)
The defining, definitive world-altering moment in the history of Petrobras occurred in 2006 with the discovery of the "pre-salt" (pré-sal) oil fields. These strong, lucrative oil reserves were trapped under thousands of feet of water, and then a further large, two-mile-thick layer of complex, shifting salt on the ocean floor. Extracting this oil required very high capital and experimental engineering. However, the pre-salt fields proved to be significant and productive. They transformed Brazil into a global oil exporter and provided Petrobras with low-cost, high-margin production, transforming the company into a lucrative highly profitable business.
Operation Car Wash (Lava Jato)
The extensive influx of pre-salt cash resulted in the largest, most destructive corporate corruption scandal in Latin American history: Operation Car Wash (Lava Jato). In 2014, federal investigators revealed an extensive, complex bribery scheme. Considerable Brazilian construction conglomerates (like Odebrecht) were forming cartels to overcharge Petrobras for the construction of refineries and drilling rigs. A percentage of this overcharged money was then siphoned off to pay considerable bribes to Petrobras executives and fund the political campaigns of the ruling Workers' Party (PT). The scandal paralyzed the company, resulted in write-downs, and sent former Brazilian presidents and corporate CEOs to prison.
The Extensive Debt and the Turnaround
Following the Lava Jato scandal and the simultaneous 2014 global oil price crash Petrobras was the most indebted corporation on earth, owing a very large $130 billion. To survive, the company executed an aggressive, significant corporate turnaround under CEO Pedro Parente. Parente sold off major, unprofitable non-core assets (like fertilizer plants and considerable international operations) and implemented a controversial, market-based pricing policy for domestic fuel. He focused the company's prominent capital budget entirely on extracting the lucrative pre-salt oil, slowly returning the extensive company to extreme profitability.
The Constant Political Tug-of-War
The existential, permanent challenge of Petrobras is its complex ownership structure. While it is publicly traded on the New York Stock Exchange, the Brazilian government retains majority voting control. This creates a, constant tension between Wall Street (which demands strong dividends and high fuel prices) and the Brazilian President (who desperately wants cheap fuel for Brazilian voters to control inflation). The CEO of Petrobras is routinely, abruptly fired whenever domestic fuel prices get too high. This considerable political interference ensures that while Petrobras possesses some of the most lucrative oil assets on earth, its valuation will always carry a "political risk" discount.
