New
York Stock exchange in Octubre 2003
By
Oliver L Campbell
Petrobras
published its audited 2006 accounts on 13 February 2007. This
is a fine achievement and shows the company has some very competent
accountants. The accounts, and the notes thereto, run to 126
pages of very detailed information.
I
had not seen Petrobras’s accounts before, and I was struck
by the fact they show the consolidated accounts in one column
and the corporate accounts in another column next to it. This
is most useful as it allows one to see how much business was done
within Brazil and how much outside. For instance, it shows Petrobras
paid under $500,000 in income taxes abroad, which seems surprisingly
low when taking into account the operations they have overseas.
The corporate accounts show Petrobras is at present a national
oil company with some operations abroad. However, if they want
to become an international oil company with some operations in
Brazil, then they will have to adopt an international outlook
and put aside nationalistic inclinations.
By this I mean 1) adopting international accounting standards
rather than those established by Brazilian Law and the rules of
the Brazilian Securities Commission and 2) reporting their results
in US dollars rather than Reais. It is a fact most of the major
international oil companies state their results in US dollars
rather than their home currency. There are some exceptions e.g.
TOTAL reports its results in Euros, but then quotes the dollar
equivalents of items of major interest.
Oil is sold in dollars on the international markets, and it is
the price of oil that most affects the financial results. It makes
sense, therefore, for the major players to report their results
in that currency. I realise there may be opposition to this change
from some Brazilians. However, I would point out PDVSA has reported
its results in dollars since it was formed in 1976 without nationalistic
repercussions.
I also believe the standard of the notes to the accounts needs
to be improved. My Portuguese is deficient so I cannot comment
on the notes in that language, but the English version leaves
something to be desired. It is a pity Petrobras did not employ
a professional translator with a good knowledge of accountancy.
I translated PDVSA’s notes in Spanish to English for some
years and, whenever I was doubtful about the clarity, I would
try it out on my wife. I assumed that if she understood it so
would the general public.
For instance, Note 2 on the Consolidation Principles
is particularly unclear. There are four types of companies--subsidiaries
which are consolidated, associates which are taken up on the equity
basis, jointly controlled companies which may be consolidated
on a proportionate basis (though I do not favour this), and those
carried as investments because the shareholding is only a small
percentage. The treatment of each one should be made crystal clear.
Note 3c Investments in subsidiaries is likewise poorly
worded and unclear as regards the difference between associated
and affiliated companies and the phrase “associated companies
and companies equivalent to affiliated companies” needs
to be clarified.
Note 3k Change in accounting practices—maintenance stoppages
is particularly difficult to understand. The reversal of previous
provisions for planned plant shutdowns and dry-docking and the
future treatment of such expenses need to be made much clearer
in half the number of words. PDVSA did it much better in their
notes to the 2004 accounts.
Lastly, Petrobras should report the figures in millions, as the
major oil companies do, rather than in thousands. This will also
enhance presentation as it avoids the figures looking so cramped.
Incidentally, the Balance Sheet presentation is not helped by
the horizontal rather than vertical layout. The classical presentation
of Current and Fixed Assets, and Liabilities and Shareholders’
Equity in a vertical format is much better in my opinion.
Like Shell and BP which bought back shares, Petrobras is flush
with money--Reais 27.8 billions at 31 December 2006--and intends
to buy back part of the preference shares. They say it is to enhance
the capital structure and reduce Petrobras’s cost of capital.
The buyback though is quite modest, and represents only 5 percent
of the preference shares in circulation.
An extract of the 2006 Statement of Income is given below:
Petróleo Brasileiro S. A.
(Figures en Millions Reais)
| |
Consolidated |
Parent
Company |
Net
operating revenues |
158,239 |
119,718 |
Cost
of products sold |
(94,666) |
(65,799) |
Gross
profit |
63,573
|
53,919 |
Operating
expenses |
(21,471) |
(15,999) |
Taxes |
(1,263) |
(680) |
Profit/(loss)
unconsolidated companies |
(233) |
424 |
Income
before social payments,
employee profit sharing and
income tax |
40,606 |
37,664 |
Social
payments |
(3,105) |
(2,883) |
Income
tax |
(8,792) |
(7,725) |
Income
before profit sharing
and minority interests |
28,709 |
27,056 |
Profit
sharing |
(1,197) |
(993) |
Minority
interests |
(1,593) |
- |
Net
income for the year |
25,919 |
26,063 |
|
|
|
Net
income in US$ |
12,300 |
12,400 |
Capital
expenditure |
33,059 |
17,402 |
Capital
expenditure in US$ |
15,700 |
8,300 |
|
|
|
Domestic
production BOE |
|
b/d 2,050,000 |
It
is difficult to say how much Petrobras contributed in total
to the Brazilian government in 2006. Social payments and income
tax amounted to Reais 10.6 billions and there may be an additional
amount from other taxes. The problem is with the net income
of Reais 26 billions since some of that will accrue as dividends
to shareholders outside Brazil. It is also not clear if Petrobras
pays royalties on its production in Brazil since the amount
could be included in cost of products sold.
What
is clear is that Petrobras had its best year ever in terms of
net income. The company is well run and it has expertise in deep
water drilling. I believe it could become a major international
oil company, with world-wide operations, if it so decided.
Oliver L Campbell
17.02.07
Oliver L Campbell,
MBA, DipM, FCCA, ACMA, MCIM was born in El Callao in 1931 where
his father worked in the gold mining industry. He spent the WWII
years in
England, returning to Venezuela in 1953 to work with Shell de
Venezuela (CSV), later as Finance Coordinator at Petroleos de
Venezuela (PDVSA). In 1982 he returned to the UK with his family
and retired early in 2002. Petroleumworld not necessarily share
these views.
Editor's Note: All comments posted and published on Petroleumworld,
do not reflect either for or against the opinion expressed in
the comment as an endorsement of Petroleumworld. All comments
expressed are private comments and do not necessary reflect the
view of this website. All comments are posted and published without
liability to Petroleumworld.
Fair
use Notice: This site contains copyrighted material the use of
which has not always been specifically authorized by the copyright
owner. We are making such material available in our efforts to
advance understanding of issues of environmental and humanitarian
significance. We believe this constitutes a 'fair use' of any
such copyrighted material as provided for in section 107 of the
US Copyright Law. In accordance with Title 17 U.S.C. Section 107.
For more information go to: http://www.law.cornell.edu/uscode/17/107.shtml.
All
works published by Petroleumworld are in accordance with Title
17 U.S.C. Section 107, this material is distributed without profit
to those who have expressed a prior interest in receiving the
included information for research and educational purposes. Petroleumworld
has no affiliation whatsoever with the originator of this article
nor is Petroleumworld endorsed or sponsored by the originator.
Petroleumworld encourages persons to reproduce, reprint, or broadcast
Petroleumworld articles provided that any such reproduction identify
the original source, http://www.petroleumworld.com or else and
it is done within the fair use as provided for in section 107
of the US Copyright Law. If you wish to use copyrighted material
from this site for purposes of your own that go beyond 'fair use',
you must obtain permission from the copyright owner.
Internet
web links to http://www.petroleumworld.com are appreciated.
Petroleumworld
News 02/25/07
Copyright
© 2006 Oliver L Campbell.
All rights reserved.
Your
feedback is important to us!
We invite all our readers to share with
us
their views and comments about this article.
