Latin American Recap: Petroleo Brasileiro Petrobras SA (ADR) (PBR) & More

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Crude has lost $9 a barrel since the beginning of the month, mainly because of disappointing reports highlighting slower growth in China and still-sluggish growth in the U.S. and elsewhere, while oil supplies remained high. At the same time, investors sold off gold, silver and other commodities, and looked to the stock market for better returns. Last week, the stock market had a volatile week as many investors traded shares looking to consolidate their positions. Looking at three Latin American oil companies, we can see that fundamentals added a special reason for this volatility.

It hasn’t been easy for YPF SA (ADR) (NYSE:YPF). The company crashed precipitously in value following the Argentine government’s decision to expropriate 51% of the company from Repsol SA (ADR) (OTCMKTS:REPYY) in April 2012. After a more than 4% drop last week, YPF SA (ADR) (NYSE:YPF)’s P/B ratio stands at 1.4, and, considering 2012 EPS of $32.9, the 2012 P/E is 11.4.


The company is in serious need of investment to help develop the country’s 7.4 million acre Vaca Muerta shale field, which may hold one of the world’s biggest unconventional energy resources. YPF SA (ADR) (NYSE:YPF), as well as

Apache Corporation (NYSE:APA), Exxon Mobil Corporation (NYSE:XOM) and Canada’s Americas Petrogas Inc. (CVE:BOE), hold exploration rights on nearly 80% of the site.

One of the main YPF refineries went offline following a fire during floods in the La Plata province a few weeks ago. YPF SA (ADR) (NYSE:YPF) plans to build a new coke unit to replace the damaged one, requiring an 800 million peso ($154 million) investment. In addition, in a press conference CEO Galuccio admitted that the company may have to increase imports from 10% to 15% in order to reach domestic supply demands. Last week the company announced that it would start exporting crude oil for the first time since January 2008.

Because of the size of YPF’s funding needs, last week Argentina created a fund of up to $2 billion to help develop the Vaca Muerta shale field. In addition, YPF expects to raise about 3 billion pesos from a debt issue due this week.

Another Latin American oil company with enormous energy resources is Petroleo Brasileiro Petrobras SA (ADR) (NYSE:PBR), known as Petrobras. Petroleo Brasileiro Petrobras SA (ADR) (NYSE:PBR) is the second largest company in terms of market cap in the Brazilian stock exchange.

Similar to YPF SA (ADR) (NYSE:YPF), Petrobras is a parastatal company whose main shareholder is the Brazilian government. As a result, Petrobras may not always maximize private shareholder equity. For years, Petroleo Brasileiro Petrobras SA (ADR) (NYSE:PBR) has been forced by the government to sell fuel domestically at a loss. The government has a tight inflation policy and uses Petrobras to keep fuel prices down and inflation in check.

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