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Brazil President Dilma Rousseff watches Petrobras CEO Maria das Graças Silva Foster sign exploration deal for the Libra field

Despite controlling up to 12 billion barrels of crude reserves in the Libra field alone, Brazil’s state-owned oil and gas giant may be headed for bankruptcy. Here’s how.

Three years ago Petrobras raised about $70 billion in the largest share issue ever, Forbes said..

Since then, its share price has dropped 45%, lowering market capitalization from $196.21 billion to the current $103.9 billion, Forbes said.

Petrobras’s debt increased 17% in the past year alone, up to $112.4 billion as of June 30.

“Petrobras also has the world’s largest corporate spending program, valued at $237 billion, it also means more trouble,” the report said.

What’s it mean?

According to Macroaxis, a personalized investment management start-up firm based in San Francisco, California, that calculates the value at risk, expected returns and volatility of more than 150,000 tradeable stock in more than 30 nations, there is a chance for that. A 32.4% chance, to be precise, which is Petrobras’ probability of bankruptcy.

Here are some reasons for the glum assessment.

  • The Brazil government has frozen gas prices to deal with inflation. “Petrobras buys oil at a price higher than the price it can be sold for in the country,” Forbes said.
  • The company must by law participate in exploration projects in Brazil, no matter how speculative those projects might be.
  • Brazil’s protectionist policies scare foreign investors.
  • The Brazil government uses Petrobras as a job bank for political rewards, and jobs go to unqualified people who lack experience in the oil and gas industry.

What about the chance for bankruptcy by other major oil companies?

Using the same measurements that peg Petrobras’ probability of bankruptcy at 32%, Exxon Mobil’s probability of bankruptcy is a just 0.86%.

State-controlled PetroChina has a probability of bankruptcy of 12.27%,.

Petrobras Argentina, a subsidiary of Petrobras listed in Buenos Aires Stock Exchange Merval Index, has a probability of bankruptcy of 85.06%, Forbes said.