Step aside, Bill Gates and Jeffrey Immelt, make way for…Petrobras? With oil trading for more than $129 a barrel, Brazilian energy giant Petrobras (PBR) has passed Microsoft (MSFT) and General Electric (GE) in recent weeks to become the second-largest company in the Americas by stock market value. The Rio de Janeiro company's $310 billion market capitalization places it behind only ExxonMobil (XOM), at $488 billion.
Petrobras is riding high on a string of big oil discoveries in the deep water off Brazil's coast, leading to a 50% increase in the company's stock price in the past seven months. But at a May 15 speaking appearance at Los Angeles Town Hall, Alberto Guimaraes, president of the company's Americas unit, argued that Petrobras' success is no fluke. Rather, the company's leading positions in deep-water drilling and the distribution of automotive fuel made from sugarcane are the result of decades of research and investment, he said, and reflect a corporate culture that emphasizes long-term planning.
"This is a sustainable company," Guimaraes said. "That doesn't just mean we take care of turtles in the ocean. If you're running a New York teachers' pension fund and you're looking for a company you can invest in for 30 years, this is what you should be looking for."
Guimaraes painted a grim long-term picture for the world's energy supply. By 2030, global energy consumption is expected to rise 50%. Yet large discoveries of new oil reserves are increasingly rare, totaling just over 50 billion barrels in the first half of this decade. That's down from more than 450 billion barrels in a similar span during the 1970s.
Despite hefty increases in investment, the largest energy companies haven't been able to increase their output. Oil and natural gas production at the world's nine largest international energy companies was down 1.7% last year, to 23.5 million barrels per day. Petrobras was an exception. Its output rose slightly, to 2.3 million barrels per day.
Guimaraes promised there would be more to come. He said the company's output target is 3.5 million barrels per day by 2012, an average annual increase of more than 7%. To get there, Petrobras will be spending $112 billion over the next four years, including massive investments in deep-water oil field development. "These are numbers the company can commit to," Guimaraes said. "They are not speculation."
Bringing Technology to the U.S.
Petrobras is drilling heavily in the U.S. Gulf of Mexico, where deep-water wells can cost $120 million each. The company hopes to transfer some of the technology it developed in Brazil, including floating production vessels that can fill up oil tankers in mid-ocean without extensive pipelines to shore. "Brazil is a big laboratory and the solutions we have found we're bringing to the U.S.," Guimaraes said.
Those solutions include sugarcane-based ethanol. This fuel, which Brazil first began developing in the 1970s, is now a 5 billion-barrel-a-year business worldwide. Petrobras, with its network of gas stations in Brazil, is the leading distributor. Nearly half of Brazil's energy supplies now come from sugarcane, hydroelectric power, and other alternative sources. The majority of cars in the country can run on gasoline, ethanol, or a combination of both. "These are not Brazilian carmakers," Guimaraes noted. "This is Ford (F), General Motors (GM), and Toyota (TM)."
Harming the Rainforest?
Environmental groups such as Conservation International and the World Wildlife Fund say Brazil's massive ethanol business is harming the rainforest by clearing vast swaths of trees to create industrial farms. But Guimaraes argues, "The nearest sugarcane plantation is 2,000 kilometers from the Amazon." He did not address criticism that increased sugarcane production elsewhere in the country is pushing cattle ranchers to tear up the rainforest.
Guimaraes also disputed claims the business was driving up worldwide food prices by sucking up arable land for energy use. "These are not acres devoted to food production," he said.
Undeterred by the criticism, Petrobras is experimenting with all kinds of other fuel sources that are not food-related, including biodiesel made from castor and palm oil. Brazil would like to export more of its sugarcane-based ethanol to the U.S., which mainly uses the corn-based kind produced by domestic farmers who are protected by tariffs placed on foreign ethanol. Guimaraes was quick to point out that no single source will solve the world's energy problems, however.
"Biofuel is not the solution," he said. "It is one of the solutions."