Brazil

Shell's Polar Pioneer arrives in Seattle

Shell's Polar Pioneer arrives in Seattle

Great companies become and stay great by taking big bets. The art of betting is, of course, about understanding the odds and being prepared and able to lose if it comes to it. Every big company in the world has been through that process — the only difference in the oil and gas industry is that the numbers are bigger. The general rule of betting in the corporate world is not to put at risk more than 10 per cent of the total business. For the biggest, that leaves plenty of scope.

So there is nothing wrong in principle with taking big bets. What is, puzzling, though is when a company with a record of deep caution stretching back to the second world war makes a series of bets that all run contrary to the conventional wisdom. The company concerned is Shell, which in the past few months has placed three huge betsRead more

Last week’s Opec meeting in Vienna confirmed that power has drifted away from the cartel that shaped the oil market for so long. The organisation was unable, as some wanted, to cut production which across Opec is running at about 1.4m barrels a day in excess of the official target. Equally, it was unable to increase production, as others favoured, in order to drive US producers of so-called “tight oil” – that is oil from shale rocks extracted through fracking – out of the market. The conclusion of the meeting was to do nothing. This means that prices will continue to be set by supply and demand. Over the last few weeks prices which had sunk in the spring appeared to be stabilising at around $ 65 a barrel for Brent with WTI five or 6 dollars lower. But such prices were not secure and now, short of a very dramatic development such as an attack by Islamic State of Iraq and the Levant on Saudi Arabia, all the odds are that prices will now fall back again.

Brent Crude Oil Future twelve month chart Read more

BRAZIL-ROUSSEFF-CONSTRUCTION-SALONThe corruption investigation initiated by the Brazilian prosecutor, Rodrigo Janot, into 54 individuals including leading politicians is just beginning. The allegations behind the inquiry concern the diversion of huge amounts of money from Petrobras, the state oil company.

No one know how much money is involved, which means that no one knows what the company is now worth.

Petrobras’s share price has fallen by 44 per cent over the last year, with some some $90bn wiped off the value of the company in just six months.

Part of that is due to falling oil prices, but more is the direct result of the company’s internal problems. There are no signs yet of the ambulance-chasing investors who like to pick up undervalued assets for a song piling in. They must think, probably with good reason, that the worst is yet to come.

In the US a class action law suit has begun. The scandal could yet bring down the Brazilian government, not least because for most of the period when the corruption is said to have happened Dilma Rousseff just happened to chair Petrobras. It could also be a deep embarrassment for the audit firms who seemed to have missed what was happening.

The question for the moment is what happens now to Petrobras itself. Read more

Petrobras is in a mess. The Brazilian state company makes promises year after year, only to disappoint. Worse still, the Brazilian government heaps on the pressure by trying to push up production targets. But it refuses for national political reasons to give the company the means and freedom to deliver.

To start with the good news. Petrobras keeps discovering huge volumes of oil and gas. The Lula field for instance is estimated to hold 8bn bbls of oil, making it a world-class elephant. Offshore Brazil is clearly one of the most prolific new provinces in the world.

That’s the end of the good news. The bad news is that Petrobras seems unable to either set or deliver credible development plans for the resources it holds. Read more