Petrobras Sets Ambitious Capital Budget by J. Fick - Article Example

The article’s strength lies in the way in which the reporter has culled the financial data pertaining to the firm to provide an analysis of the plans of the firm in the next few years. Considering that capital budgeting and allocation of capital for various divisions is often an indicator of the company’s priorities, the reporter has done a good job in drawing conclusions from the available data. The following quote illustrates how the company is planning to spend the huge capital investment on its expansion plans, “The staggering capital expenditures will be used primarily to develop Brazils massive offshore oil reserves in the pre-salt region, which is expected to be pricey and complicated due to the depth of the reserves” (Fick, 2010).

The implications of the article for global and managerial finance are that there is a lot of potentials yet to be tapped in the oil fields outside of the traditional producers like the Middle Eastern countries and Russia. The point to note is that Brazil is one of the “BRIC” countries (Brazil, Russia, India, and China) that are expected to power economic growth in the coming decades, has announced its intentions on aggressive expansion even as the Western countries like the United States and those in Europe (Germany, Britain, etc) are cutting down on capital budgets in view of the relative scarcity of capital because of the “credit crunch”.

Hence, this move by Petrobras signifies an emerging equation among the world’s preeminent energy producers and their ability to drive the market for energy use. It is clear that the balance of power is changing in terms of financial resources as well as energy dynamics. This is something that the managers of tomorrow may well note when they decide on investment strategies in the different regions of the world. Petrobras is typical of state-owned energy companies that have embarked on aggressive expansion plans and have significantly allotted capital for such plans as a means of redrawing the energy map in the 21st century.

The other example is the state-owned Chinese company, SINOC, that are moving to exploit the countries in the African continent as part of the energy expansion plans. In conclusion, Petrobras has allotted substantial capital for expansion and it remains to be seen whether the return on the same is good enough for it to continue on the path that it has chosen. The current indications are that it is indeed reaping a good return on its capital employed as can be seen from the financials that have been presented in the article.