Drilling South: Petrobras Evaluates Pecom

Harvard Business School Case 204-043

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Exhibit 7 Petrobras Balance Sheet and Income Statement U.S. GAAP (in $ millions)
As of December, 31
ASSETS

2001

2000

1999

7,360
2,759
2,399
1,808

5,826
2,211
3,087
1,402

3,015
1,575
2,270
1,307

14,326

12,526

8,167

19,179
746
2,613
22,538
36,864

19,237
5,051
2,322
26,610
39,136

18,426
4,925
2,215
25,566
33,733

1,783
2,041
4,220
8,044

2,011
4,080
3,549
9,640

1,314
5,765
2,732
9,811

3,380
5,083
5,908
1,123
15,494
23,538
79
13,247
36,864

4,319
3,426
4,833
2,060
14,638
24,278
153
14,705
39,163

5,163
1,781
4,778
1,241
12,963
22,774
237
10,722
33,733

Current Assets
Cash and cash equivalent
Accounts receivable
Inventories
Other current assets
Total current assets

Permanent Assets
Property, plant and equipment
Receivables from Brazilian Government
Others
Total non-current assets
Total Assets
LIABILITIES AND STOCKHOLDERS EQUITY
Current liabilities
Trade accounts payable
Short-term debt
Other current liabilities
Total current liabilities
Non-current liabilities
Employees post retirement benefits
Project financings and capital lease obligations
Long-term debt
Other liabilities
Total non-current liabilities
Total Liabilities
Minority Interests
Total Stockholders Equity
Total Liabilities + Equity

As of December, 31
Total Revenues
Value-added taxes, freight, and specific parcel price
Net Revenues
CoGS
Gross Profit
Total Depreciation, depletion and amortization
Exploration
Selling, general, and administration expenses
Research and development expenses
Total Cost and Expenses
Operating Income
Nonoperating Items
Income before Financial Items
EBITDA
Financial Income (Expenses)
Net Income before Extraordinary Items
Net Income (average tax rate of 35%)

2001

2000

1999

34,145
-9,596
24,549
-12,807
11,742
-1,729
-549
-1,751
-132
-4,161
7,581
-1,361
6,220
8,498
567
4,749
3,491

35,496
-8,541
26,955
-13,449
13,506
-2,022
-477
-1,450
-152
-4,101
9,405
-1,126
8,279
10,778
204
5,821
5,342

23,467
-7,109
16,358
-8,210
8,148
-2,262
-295
-1,282
-132
-3,971
4,177
-723
3,454
6,011
213
2,487
727

Source: Adapted from F. J. McGann and M. Sequeira, US GAAP results show no surprises, Merrill Lynch, July 1, 2002.

Exhibit 8 Petrobras, Pemex, PDVSA, and Pecom Key Statistics

Operating Figures - 2001

Combined reserves (billion boe)
Combined production
Lifting and production costs ($)
Production cost per barrel ($)
Financial Data (in $ million) 2001
Total assets
Total Debt
Shareholders Equity (book value)
Net Debt
EBITDA
Net Income
Stock Returns
(as of March 28, 2002)
1 Year
3 Years
5 Years

Petrobrasa

Pemexb

PDVSAc

Pecom

9.3
1,568
3.26
4.85

53
4,338
3.34
4.06

103.4
3,973
2.17
3.76

1.1
184
2.72
6.4

32,390
18,491
12,483
11,118
9,362
4,194

60,913
37,994
13,439
36,414
26,668
-3,729

57,542
12,273
37,098
11,348
11,167
3,993

6,194
2,656
2,817
1,674
693
102

15%
127%
44%

-43%
-47%
-67%

Source: Compiled and adapted from Rodrigo Lopes <rodrigo.lopes@chase.com>, Dados Relatorio Petrobras, to
Ricardo Reisen de Pinho <rreisen@hbs.edu>, March 7, 2003, and March 13, 2003, and companies reports
a

Brazilian GAAP

Petroleos Mexicanos, Mexican state-owned oil company

Petroleos de Venezuela, S.A., Venezuelan state-owned oil company

Exhibit 11a Perez Companc: Seven-year Debt Refinancing Schedule (Estimates as of March 31, 2002 in $ millions)

Bank Loans
Bonds
Total

1 Year
834
93
927

2 Years
159
285
444

3 Years
147
0
147

4 Years
86
0
86

5 Years
20
189
209

6 Years
20
378
398

7 Years
6
0
6

Source: Adapted by casewriter from Frank J. McGann and Marcus Sequeira, Perez Companc - Can it weather the storm? Merrill Lynch, June 3, 2002, p.

Exhibit 11b Perez Companc: Debt Breakdown by Type (Estimates as of March 31, 2002 in $ millions).
1 Year
Bonds
Foreign Banks
Trade Finance
Local Banks
Accrued Interest
Total

93
435
292
51
56
927

Years 1-7
Total
945
802
364
52
56
2,219

% Total
10%
54%
80%
98%
100%
42%

Source: Adapted by casewriter from Frank J. McGann and Marcus Sequeira, Perez Companc - Can it weather the storm? Merrill Lynch, June 3, 2002, p.

2002 in $ millions)

m? Merrill Lynch, June 3, 2002, p. 5.

m? Merrill Lynch, June 3, 2002, p. 5.

Exhibit 12 Perez Companc Cash Flow Forecast (in $ millions)

1999A

2000A

2001A

2002E

175
196
13
384
-99
67
352
-496
-63
-175

235
220
7
462
-89
84
456
-576
-65
-178

151
305
19
475
-92
64
447
-794
-64
-382

32
265
12
309
-50
0
258
-98
0
210

-207

-184

-411

160

CASH FLOW
Net income from operations
Depreciation
Exploration expense
Gross Cash Flow Perez Companc
Earnings unconsolidated affiliates
Dividends - unconsolidated affiliates
Gross Cash Flow - adjusted for equity affiliates
Capital Expenditures
Dividends
Net Gross Cash Flow - Discretionary
Net Gross Cash Flow Discretionary adjusted for equity
affiliates

Source: Adapted by casewriter from Frank J. McGann and Marcus Sequeira, Perez Companc - Can it weather the storm? Merrill Lynch, June 3, 2002, pg. 6.

2003E

2004E

2005E

2006E

2007E

79
267
12
358
-37
0
321
-196
-39
122

125
284
10
418
-40
0
379
-295
-43
80

192
317
10
519
-41
0
478
-491
-48
-19

290
317
10
617
-43
0
574
-491
-52
73

347
317
10
674
-45
0
629
-491
-58
125

85

41

-61

30

80

errill Lynch, June 3, 2002, pg. 6.

Exhibit 13 Perez Companc Projected Balance Sheet (in $ millions unless otherwise stated)
As of December, 31

1999A

2000A

2001A

2002E

2003E

2004E

2005E

254
641
147
1,042

274
627
170
1,071

581
566
156
1,303

485
453
113
1,051

655
491
123
1,269

691
518
130
1,339

616
579
145
1,340

50
77
1,194
2,661
9
3,991
5,033

77
93
1,251
2,990
5
4,416
5,487

96
97
1,126
3,550
8
4,877
6,180

76
63
357
2,310
8
2,814
3,865

82
68
395
2,071
8
2,624
3,894

86
72
435
1,922
9
2,524
3,863

97
80
477
1,942
9
2,605
3,944

180
305
159
644

249
739
141
10,129

318
1,269
269
1,856

239
1,274
217
1,730

260
1,279
234
1,773

274
1,284
247
1,805

306
1,289
276
1,871

1,612
204
1,816
2,460
17
2,556
5,033

1,410
172
1,582
2,711
68
2,708
5,487

1,403
114
1,517
3,373
71
2,736
6,180

1,003
77
1,080
2,810
75
980
3,865

1,003
83
1,086
2,860
79
955
3,894

903
88
991
2,796
83
984
3,863

803
98
901
2,772
87
1,085
3,944

1999A

2000A

2001A

2002E

2003E

2004E

2005E

37%
42%
45%
41%
38%

33%
37%
46%
42%
39%

33%
36%
50%
48%
42%

49%
52%
71%
67%
62%

49%
53%
71%
67%
59%

46%
50%
70%
65%
56%

40%
45%
67%
62%
54%

3.28
7.20%

3.47
9.20%

3.51
5.80%

1.26
1.80%

1.23
8.40%

1.26
13.30%

1.39
19.20%

1,917
1,663

2,149
1,875

2,672
2,091

2,277
1,792

2,282
1,627

2,187
1,496

2,092
1,476

ASSETS

Current Assets
Cash and cash equivalent
Accounts receivable
Inventories
Total current assets
Non current Assets
Accounts receivable
Inventories
Investments
Fixed assets
Others
Total non-current assets
Total Assets
LIABILITIES AND
STOCKHOLDERS EQUITY

Current liabilities
Accounts payable
Short-term debt
Other current liabilities
Total current liabilities
Non-current liabilities
Long-term debt
Other liabilities
Total non-current liabilities
Total Liabilities
Minority Interests
Total Stockholders Equity
Total Liabilities & Equity

Balance Sheet Ratios

Total LT debt/Capital
Total LT liabilities/Capital
Total LT liabilities & ST
Debt/Capital
Total debt/Capital
Net Debt/Net Capital
Book Value/Share (in $)
Return on average capital
Total debt
Debt less Cash

Source: Adapted by casewriter from Frank J. McGann and Marcus Sequeira, Perez Companc - Can it weather the storm? Merrill Lynch, June 3, 2002, pg

2006E

2007E

622
679
170
1,471

693
755
189
1,637

113
95
521
1,964
9
2,702
4,173

126
105
567
2,026
9
2,833
4,470

359
1,294
324
1,977

399
1,299
360
2,058

703
115
818
2,795
91
1,287
4,173

603
128
731
2,789
95
1,586
4,470

2006E

2007E

33%
39%
62%
57%
48%

26%
32%
56%
51%
40%

1.65
25.20%

2.03
24.90%

1,997
1,375

1,902
1,209

orm? Merrill Lynch, June 3, 2002, pg. 31.

Exhibit 14 Perez Companc Consolidated Earnings Model (in $ millions unless otherwise stated)
1999A

2000A

2001A

2002E

2003E

2004E

Sales

589

719

891

674

784

829

96

100

125

120

119

125

10

WTI ($ per barrel)

19

30

26

22

25

23

Average oil sale price ($per barrel)

15

17

16

14

16

16

Average gas sale price ($ per thousand cm)

40

45

42

20

24

27

Adjustments/Eliminations

-2

-3

-6

-6

-7

-7

543
140
8
59
-99
1,240

717
158
35
56
-139
1,546

750
164
38
49
-238
1,654

460
70
19
28
-95
1,155

539
96
21
31
-105
1,366

559
110
23
34
-115
1,440

189
21
80
56
10
-44
312
521
-134
178
-8
5
175
130
0
33
338

246
65
93
56
4
-62
402
633
-157
260
-15
-10
235
41
0
0
283

266
35
99
47
9
-70
386
716
-206
175
-14
-10
151
-55
0
0
102

201
11
29
8
35
-25
259
541
-220
39
-10
-5
26
26
-514
0
-463

279
24
32
3
25
-27
335
619
-230
105
-19
-6
81
0
-66
0
15

313
42
42
3
26
-29
397
696
-225
172
-40
-8
129
0
-55
0
74

Oil & Gas Production

Assumptions:
Oil Sales (thousand of barrels per day)
Gas Sales (million of cubic meters per day)

Petrochemical & Refining

Electricity
Distribution & Transportation
Non-energy Sales
Eliminations
Total Consolidated Sales
Operational Income
Oil & Gas Production
Petrochemical & Refining
Electricity
Distribution & Transportation
Non-energy Operational Income
Corporate & Eliminations
Total Operational Income
EBITDA
Net Financial Expenses
Pre tax Income
Tax (average tax rate of 35%)
Minority Interest
Net Income before Extraordinary Items
Extraordinary Items
FX Gains (Losses) Parent/Subsidiaries
Income on non-current investments - YPF
Net Income

Source: Adapted by casewriter from Frank J. McGann and Marcus Sequeira, Perez Companc - Can it weather the storm? Merrill Lynch, pg. 16, 17, and 29.

2005E

2006E

2007E

927

1,115

1,284

134

158

176

10

11

11

24

24

25

17

17

18

29

30

32

-8

-9

-10

591
155
25
37
-127
1,608

625
217
28
41
-139
1,887

662
229
31
45
-153
2,097

362
47
57
3
28
-31
466
799
-195
271
-69
-10
198
0
-49
0
149

447
49
82
3
29
-33
578
912
-165
414
-111
-13
297
0
-44
0
255

524
52
86
4
31
-35
662
995
-165
497
-135
-15
358
0
0
0
358

Merrill Lynch, pg. 16, 17, and 29.

Exhibit 16a Pro Forma Operating Figures (as of December 2001)

Proven Reserves
Oil (million bbl)
Gas (billion cubic meters)
Combined (million boe)
Production
Oil (thousand barrels per day)
Gas (million cubic meter per day)
Combined (thousand boe per day)
Downstream
International Refining Capacity (thousand bpd)
Gas Stations in Argentina
Gas Transportation Lines (kilometers)

Petrobras

Pecom

Pro Forma

7,749
253
9,257

739
46
1,010

8,488
299
10,267

1,379
36
1,596

125
10
181

1,504
46
1,777

91
707
7,500

124
128
7,000

155
835
14,500

Source: Adapted by casewriter from, Perez Companc Acquisition Overview, PowerPoint Presentation, July 2002. Petrobras S.A, Investor Relations.

Exhibit 16b Pro Forma Financial Data (as of

March 31, 2002)

Balance Sheet and Market Data

Total Assets
Total Debt
Shareholders Equity (Book value)
Cash and cash equivalents
Net Debt
Income and Cash Flow Statement Data
Sales
EBITDA
Net Income
Capital Expenditures (CAPEX)

Petrobras

Pecom

Pro Forma

37,119
14,016
12,656
6,445
7,571

3,446
2,330
700
236
2,094

40,565
16,346
13,066
5,926
10,420

22,724
8,544
2,883
4,629

1,555
689
-392
747

24,279
9,233
2,653
5,376

Source: Adapted by casewriter from, Perez Companc Acquisition Overview, PowerPoint Presentation, July 2002. Petrobras S.A, Investor Relations.

bras S.A, Investor Relations.

bras S.A, Investor Relations.

Exhibit 18 Market Valuation Indicators (as of March 28, 2002, unless noted otherwise)

Beta 1 Year
Beta 3 Years
Market price

Petrobras
0.69
(PBR)
0.94
$26.47

Pecom
0.77
(PC)
0.87
$8.12

Brazilian Sovereign
Risk (bps) Sovereign
Argentine
Risk
(bps)10 Years
Treasury
Treasury 30 Years

Market Indicators
718
5,013
5.40%
5.80%

Source: Adapted by casewriter from Rodrigo Lopes <rodrigo.lopes@chase.com>, Dados Relatorio Petrobras, to Ricardo Reisen de Pinho <rreisen@hb

 to Ricardo Reisen de Pinho <rreisen@hbs.edu>, March 7, 2003, and March 13, 2003.

Exhibit 21 Valuation Tables for Selected Companies (as of March 28, 2002)
Company

Ticker

Price
(US$)

Market Cap

EV
Reserves

EV
EBITDA

2002

2001A

2002E

Supermajors

BP
Chevron Texaco a
Exxon Mobil
Royal Dutch
Shell Transport
Total Fina Elf
Weighted Average b
Majors
Occidental
Murphy
BG
ENI
Norsk Hydro
Conoco Phillips
Repsol YPF
Statoil
Weighted Average b
Emerging Oils
Lukoil
MOL
Sibneft
Yukos
Surgut
PetroChina
Sinopec
PKN
Weighted Average b
Petrobras
Overall Weighted Average

BP
CVX
XOM
RD
SC
TOT

53.1
90.3
43.8
54.3
44.3
76.6

198
98.8
294.9
113.1
71.3
101.8

10.4
7
11.5
4.8
3.3
9.1
9

6.9
5.1
7.1
4.9
4.9
5.7
6.2

8.1
5.9
8.9
5.4
5.5
5.9
7.3

OXY
MUR
BRG
E
NHY
COP
REP
STO

29.2
48.8
22.3
72.1
47.9
62.8
12.7
7.8

10.9
2.2
15.7
57.6
12.3
42.6
15.5
17.1

6.8
6.9
10
9.4
6.9
16.6
4.7
5
9.3

4.8
3.6
14.2
7
4.3
8.6
6.6
4.5
7

5.7
6.3
14.6
4.9
3
10.4
3.1
2.5
6.3

LUKOY
MOLHB
SBKYY
YUKOY
SNGSRU
PTR
SNP
PKNPW

59
4,950.00
17
124
11.4
20.9
16.2
18.7

11.1
1.7
8
18.4
13
3.6
0.3
1.9

3.8
8.5
6.3
5.2
2.9
3.2
8.4
5.6
4.8

4.5
NA
7
5.2
2.6
3.1
8.7
5.8
4.9

PBR

26.5

28.7

1.1
NA
3.4
2.2
1.2
2.6
7.6
NA
3,2
2.9
6.1

2.8
5.2

3.1
5.4

Source: Compiled and adapted from Alexandra Strommer, Muscle and Brains, J.P. Morgan Securities Inc., July 16, 2002, p. 14, and from Rodrigo Lopes
a

Proven reserves for Chevron Texaco is the sum of the individual proven reserves reported by both Chevron and Texaco
Weighted average by market capitalization

EV
ITDA

EV
Debt Adjusted Cash Flow

Price
Cash Flow

2003E

2001A

2002E

2003E

2001A

2002E

2003E

6.2
5
7.7
4.7
4.8
5
6.1

9
7
9.2
6.7
6.9
6.9
8.1

8.3
7.3
11.4
7.8
7.9
7.3
9

7.1
6.3
9.6
6.8
6.9
6.5
7.7

10.2

7.3

7.3

6.3

6.3

5.5

9.1

10.9

9.3

6.8

7.6

6.4

6.9

7.7

6.5

7.2

6.6

6.1

8.3

8.4

7.4

4.8
3.9
9
4.7
3.3
5
3.7
2.6
4.6

5.2
3.7
18.6
8.1
17.7
16.3
5.2
2.2
9.8

6.2
5
14.2
8.3
16.9
19.8
5.4
2.9
10.6

5.3
3.7
11.7
6.8
14.7
10.9
5.5
2.3
7.8

4.1

4.4

2.8

3.4

2.4

20.9

7.6

6.2

5.3

5.4

4.9

3.9

3.7

2.7

6.9

5.1

3.1

4.5

3.8

3.8

5.3

4.1

5.6

5.7

4.7

3
NA
5
3.8
2.4
2.8
6.3
4.1
3.8

4.6
8.9
6.8
6.2
NA
4.4
5.5
6
4.8

5.4
NA
7.6
6.8
NA
4.2
5.5
6.3
5

3.6
NA
5.9
5
NA
3.8
4.6
4.6
3.9

3.8

4.5

6.8

NA

NA

6.5

7.4

5.7

6.6

5.2

5.1

4.6

4.1

3.5

3.4

3.2

3.2

3.2

2.7

4.7

4.9

3.5

4.6

4.7

3.8

2.8
4.3

3.7
6.6

3.6
7.1

4.3
5.9

2.5

2.2

2.6

5.3

5.3

4.6

uly 16, 2002, p. 14, and from Rodrigo Lopes <rodrigo.lopes@chase.com>, Dados Relatorio Petrobras, to Ricardo Reisen de Pinho <rreisen@hbs.edu>, March 7, 2003, an

Price
Earnings
2001A

2002E

2003E

13

15.7

10.9

10

13

10.3

15.2

20.7

15.6

12

13.7

10.6

12.2

14.1

10.8

14

14.5

11.5

13.4

16.6

12.5

8.5

11.8

9.9

7.7

21.2

6.7

20.9

9.7

5.3

5.4

4.9

3.9

3.7

2.7

8.8

14.5

10.2

3.1

4.5

3.8

3.8

5.3

4.1

7.3

8.9

6.7

6.1

3.5

21.3

NA

NA

31.9

48.7

33

14.7

17.5

13.5

209.2

189.3

170.4

6.4

6.2

5.6

7.7

8.7

6.1

25.3

18.5

7.6

31.9

31.7

26.4

3.6

4.3

3.8

14

15.4

12.3

Pinho <rreisen@hbs.edu>, March 7, 2003, and March 13, 2003.