Who needs Mag7 when we have Brazilian Oil?

A few months ago (July) on my podcast I did a deep dive on Petrobras (NYSE:PBR), the Brazilian state-controlled oil giant. **The share price is up 40% since then**, so I thought some of you might be interested what's going on. I saw someone write on here recently that value investing is dead. I respectfully have to disagree. PBR is at the centre of a crazy story involving Brazilian politics, oil money, and corruption scandals. Sit back, put your feet up, light that stogie or joint, and check this out. It doesn't get much crazier that this and this is why I love talking about the U.S. markets. We just don't get stories this bonkers in Australia. Petrobras is one of the largest and most profitable oil companies on earth and, at the time, it was trading at roughly half the valuation of its peers, largely because of political noise, a messy corruption history, and currency confusion. I love a good backstory. And this baby's got back. You cannot understand Petrobras without understanding Getúlio Vargas, who served as Brazil's 14th and 17th president, aka the "Father of the Poor." He crushed Brazil's actual fascists, the Green Shirts, when they tried to storm his palace in 1938, gave workers a minimum wage and paid holidays in 1943, and then banned strikes in the same breath. Daddy Vargas giveth and Daddy Vargas taketh away. He also sent 25,000 Brazilians to fight fascism in Italy **while running a quasi-fascist state at home**. Got deposed in 1945, came back via democratic election in 1951. And then, on 3 October 1953, he signed Law 2004 into existence, creating Petrobras. Ten months later, **he shot himself in the chest.** His suicide note ended with: "I leave life to enter history." I mean. COME ON. The founding of Petrobras wasn't just a government decision. It came out of a genuine mass movement called "O Petróleo é Nosso," which translates as "The Oil Is Ours." This campaign, launched in 1948, brought together army officers, communists, and university students in the streets for years. The spark was a children's author, Monteiro Lobato, basically the Roald Dahl of Brazil, who was convinced the government and foreign oil majors were deliberately suppressing oil exploration. In 1936 he published "O Escândalo do Petróleo" (The Oil Scandal), which sold out multiple editions and accused the federal bureaucracy of a policy that translated roughly as: "doesn't drill, and won't let anyone else drill." Vargas had him arrested, sentenced him to six months, and reportedly included a specific prohibition on SUNBATHING in the sentence. I'm not going to pretend to even begin to understand that. He was pardoned after three months, came out broken but vindicated. A 1938 oil strike in Bahia proved reserves existed. Vargas immediately banned private companies from exploring within 60 kilometres of the strike site. By 1948, the Dutra government tried to open Brazil's oil sector to private and foreign capital (read: American oil majors, this was the era of the Seven Sisters). The street campaign killed that proposal. Five years later, Petrobras was born with a statutory monopoly on Brazilian oil that would last 44 years until a constitutional amendment broke it in 1995. Side note: Brazil is named after the brazilwood tree, from the Portuguese word "brasa," meaning a glowing ember or burning coal. So the country named after burning wood built its entire modern economy around the stuff you burn made from fossilized wood. How great is that!? Right. Now we get to the fun bit. Operation Car Wash, or "Lava Jato," kicked off in March 2014 and earned its name because the money laundering was first spotted running through a single car wash in Brasilia. What started there eventually took down leading businessmen, senators, state governors, federal ministers, and former presidents, with roughly a third of Congress indicted at various points. America - you could learn a few lessons from Brazil. The mechanics were straight out of a Hollywood movie. Construction and engineering companies formed a cartel, carved up Petrobras contracts among themselves, inflated prices, and kicked the difference back to Petrobras executives and politicians. It had been running for years. Lula, the former president, got swept up in it and went to jail. The judge who sentenced him, a bloke called Sergio Moro, then announced in 2019 that he was resigning from the bench to become justice minister under right-wing president Jair Bolsonaro, Lula's main political rival at the time. Yes, really. In 2022, the United Nations Human Rights Committee declared that Moro was biased in all cases against Lula. Bolsonaro ended up in jail, and is still in jail. Lula, who went to prison during Carwash, is currently president. But get this - Bolsonaro's son is now running against Lula. THEN... on 19 January 2017, a small plane carrying Supreme Court Justice Teori Zavascki, the main magistrate prosecuting the case, crashed into the sea. Killing him and four others. Hmmmm. In April 2015, Petrobras released financial statements showing $2.1 billion in losses and nearly **$17 billion in total write-downs due to graft and overvalued assets**, which the company described as a "conservative estimate." They eventually paid a $2.95 billion US class action settlement, plus another $853 million to the DOJ and SEC in 2018. Their legal position throughout was that they were a victim of the cartel, not the architects of it. That framing more or less stuck. Here's the thing. Strip away the politics and the scandal, and what you have left is a genuinely extraordinary business. Petrobras produces around 3.23 million barrels of oil equivalent per day, up roughly 16% year on year. A single field, Búzios, produces over one million barrels per day on its own. That is more than Venezuela's entire national output from one field. They do this by drilling through two kilometres of ocean water, then two kilometres of rock, then a two-kilometre layer of salt, into a pre-salt reservoir that costs around $25 a barrel to produce from. That is extremely cheap by global standards and the crude is high quality. They own about 79% of Brazil's entire oil refining capacity. Every petrol station in a country of 210 million people is more or less downstream of this operation. They also pipe and sell the gas that comes up alongside the oil, and sell electricity. They find it, refine it, and sell it to the whole country. It is a genuinely bonkers business. The valuation discount here is almost entirely explained by governance risk, currency complexity, and political noise. This company trades at roughly half the valuation of comparable oil majors like BP, largely because it's Brazil and its crazy story. The currency story is also compelling. The Brazilian real has strengthened significantly against the US dollar in 2025, partly because Brazil's benchmark interest rate (the Selic rate aka the Tom Selleck) was sitting around 14.25% versus the US Fed funds rate near 3.5% at the time I recorded the show (currently 13.75% a year, effective since 17 September 2026). The carry trade is driving real demand for the currency. For Petrobras, a stronger real reduces the real value of their $28 billion USD debt load. They book a gain. The same dynamic that makes their revenue look flat (oil is priced in dollars, reported in reais) is actively improving their balance sheet. And then there is the political angle. If Lula wins, things probably stay roughly as they are, which is already pretty good. If the opposition wins, a right-wing government would almost certainly be more shareholder-friendly in terms of dividend policy and capital allocation. It is a rare situation where the political risk cuts in a broadly positive direction for investors regardless of outcome. **The 58th largest public company on earth, priced like a mid-cap regional bank. That is the story.** *Disclaimer: Not financial advice. I'm just an Australian guy with a spreadsheet. DYOR.*