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Petroleo Brasileiro Petrobras SA (ADR) (NYSE:PBR) Went Overboard On Its Comperj Refinery Spent

Boston, MA 10/16/2014 (wallstreetpr) – The tribunal looking at the state spending has come to acknowledge that Petroleo Brasileiro Petrobras SA (ADR) (NYSE:PBR) is surely not keeping up with its budget. According to Tribunal, the state-run producer has crossed its budget by over 60% for one of its refineries, Comperj. The audit into the company’s spending patterns stems from its cost overruns.

Management’s Reckless Approach

One of the members of the tribunal, Jose Jorge said that Petroleo Brasileiro Petrobras SA (ADR) (NYSE:PBR) will spend as much as $21.6 billion towards the completion of Comperj complex. The refinery is scheduled to start functioning in 2016. Moreover, the audit court found way more discrepancies within the company’s different divisions and with other government agencies with respect to its investment in the refinery. The Tribunal confirmed that the management did not act in an appropriate way relating to decisions taken over spending on the refinery. For instance, technical analysis and necessary controls were skipped while contracts were given at excessive price.

Recommend Issuing A Warning

The abnormalities have prompted the Tribunal to investigate about the possibility of such misappropriation at such a large company. Other members of the Tribunal have asked for time to go through the audit report. All members agreed to issue a warning to Petroleo Brasileiro Petrobras SA (ADR) (NYSE:PBR), demanding an explanation for irregularities. The length of the cost associated with Comperj is understood from the fact that each barrel will cost $130,000 against the highest $80,000 costing of Abreu e Lima refinery. In fact, Petroleo Brasileiro Petrobras SA (ADR) (NYSE:PBR) CEO Graca Foster had stated that Abreu e Lima costs should not be repeated in view of cost overruns.

Since Abreu e Lima refinery is also facing investigation, the complexity for Comperj remains severe. Jorge told reporters that he is considering the request of other Tribunal members to issue a warning to the company followed by submission of recommendation on October 22, 2014.

Published by Alan Masterson

Alan has over 25 years of trading experience in the U.S. equity markets. He began his career in finance working on a program trading desk specializing in over-the-counter stocks. His career progressed from that point to his current position as senior trader on an institutional trading desk. In the evenings, Alan teaches economics at a local community college. He has contributed articles to various publications over the last six years, including feature articles for an economics magazine and various financial blogs. You may contact Alan via his email ([email protected]) or his Google+ page (https://plus.google.com/103338576216002376250).



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