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Petrobras SWOT & PESTLE Analysis

ID : 5266153 | Nov 2017

OVERVIEW

Name of the Company: Petrobras

Business Sector: Petroleum, Oil and Gas

Operating Geography: Brazil, Global

Petrobas logo

About the Company: Petrobras founded in 1953 is headquartered at Rio de Janeiro. It is a public company whose 50.3% shares are owned by federal government of Brazil. It marks its presence on the Dow Jones Sustainability Index since 2006. Petrobras is a part of Global Compact Board and is also associated with UNICEF and World Business Council for sustainable development. It contributes significant amount to the Brazilian Oil and Gas Industry worth 13% of their Gross Domestic Product (GDP). Petrobras specializes in: Petrochemicals, Oil and Gas Exploration and Production, Electric Energy Generation, Oil and Gas Refining, Bio Fuel Production, Transport and Trade. With a total of 86,111 employees the company seeks improvement on all grounds.

Revenue:

SWOT & PESTLE Analysis

The SWOT Analysis of Petrobras is given below:
Strengths
Weaknesses
1. Strong financial resources. E.g. high net income, net profit, EBITDA etc.
2. Well managed human resource and operating frameworks.
3. Deep water technological expertise.
4. Vertical Integration of large scale operations.
1. Very high debt
2. Large number of law suits
3. Inability to get the best machinery and talent due to legal requirements as per Brazilian law.
Opportunities
Threats
1. Strong presence and channels globally
2. Unexplored markets are available
3. Promoting green energy exploration
1. International market instability and currency fluctuations
2. Environmental Issues and regulations
3. Deteriorating brand value due to scandals
4. Government regulation on petrol prices
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Strengths

1. Strong Financial Resources e.g. High Net Income, Net Profit, EBITDA etc. : Petrobas is one of the biggest oil and Gas Company in the world. So they have good stakeholder trust. Hence they easily generate cash flows by virtue of it. Going by their latest balance sheet they have high EBITDA, Net Profit, Net Income etc.

2. Well managed Human Resource and operating frameworks: Petrobras has well laid HR policies and other frameworks. They recently received award from Singapore Human Resource Institute in 2014.They also have well laid They received 2014 transparency trophy and second place among company of dream of young people in 2014. It also launches sustainability report each year

3. Deep water technological expertise: Petrobras has strong technical expertise. They produce oil today at depths of more than 7000 meters. It produces more than 3,00,000 barrels every day at present. Moreover it has successfully managed to upgrade its technology to tackle frequent oil spills. Pre-Salt technology has been its biggest achievement. It is a rare expertise in deep sea oil exploration.

4. Vertical Integration of large scale operations: Vertically integrated large scale operations help maintain proper synergy and smooth project execution. Business units are turned into the operating units for integration. This structure works efficiently for Petrobras.

Weaknesses

1. Very High debt: Petrobras is facing very high debt worth 125 billion dollars. This causes high interest payments every year. That’s why Petrobras has been recently trying to free its non-profit generating assets. It is selling such assets like old refineries and lands. Debt rating of Petrobras as per the Moody is Ba2 and as per Fitch is BBB- which is negative, which shows the red flags.

2. Large number of law suits: Petrobras is facing many law suits across the globe. May it be the case related to fraud in Kickback scheme in U.S or the litigations related to Environment damage? Apart from that it also faces many cases filed in the recent corruption scandal.

3. Inability to get the best machinery and talent due to legal requirements as per Brazilian law: Petrobras being a state owned company has legal requirements which mandate buying parts and hiring people locally in order to promote jobs and industry in Brazil. This has been creating troubles with their budgets and quality.

Opportunities

1. Strong presence and channels globally: Petrobras has been present in this industry for past 50 years and has good hold over the market positioning. Not just that it controls all its channels right from exploration stage to distribution which minimizes the cost aspect. It efficiently manages customer as well as supplier channels. It also efficiently uses Petronect, the electronic procurement portal.

2. Unexplored markets are available: Petrobras has new markets waiting to be explored. It explored into developing markets like Chile and China by virtue of its expansion based policy. It can still explore the potential of markets like India, Bangladesh etc. It has also signed contracts with Asian country Japan.

3. Promoting green energy exploration: Petrobras can also target the “Green Energy” market since that is the future of energy. It will provide first mover advantage to Petrobras as well as significant growth in future. They are only targeting Bio-fuels as of now. Recently Petrobras developed new technology to reduce Greenhouse gas emissions.

Threats

1. International market instability and currency fluctuations: Instable market fluctuations have been witnessed from time to time. The supply and demand side variations create instability in terms of prices and availability. Whether it may be the phenomenon related to controlling of oil purchase from several middle-east nations by USA or the enhanced oil supply by US which suddenly reduced the oil prices globally.

2. Environmental Issues and regulations: Petrobras has witnessed around 8 oil spill cases since 2000 which has been a cause of concern since it costs heavy damage to marine life. Although in recent years they have worked on their technology and as a result of it such incidents have reduced too.

3. Deteriorating brand value due to scandals: Petrobras has been involved in many controversies too. They have hampered the brand value. Some of them are mentioned below for reference.

o Controversy associated with Ecuador government related to the taxes

o Oil spill Controversy in 2000 due to Human Error

o Controversy of uncontacted tribes in peru by Brazilian Indians created questions about its sustainability focus

o Bolivian Controversy in 2006

o US Spying controversy in 2013 and

o Operation Car Wash in 2015

Apart from these controversies it has been regularly facing litigations. Petrobras has been dragged into corruption issues inspite of strong values, Corruption Prevention Program and Code of Ethics promoted by the organization. It is reducing the stakeholder’s belief and trust which will degrade the brand value and hamper the investments too.

4. Government regulation on petrol prices: Government regulations from time to time in order to control the inflation create problem for Petrobras. Since oil is a traded internationally, its prices are determined by international political forces and diplomacy. Brazil has fixed an upper cap on the petrol prices which mandate Petrobras to import oil and then sell it at lesser price in Brazil. Middle East which is having huge oil reserves has seen up gradation in technology in recent years, Hence their exploration and supply reserves have increased. Petrobras has major hold in Brazil and US. This means that they are directly competing with middle-east countries. Earlier also the growth of Petrobras was severely hit by 1973 oil crisis due to dependence on International market.

Petrobras SWOT analysis has been conducted and reviewed by senior analysts from Barakaat Consulting.
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