Petrobras
Risk Management
We are exposed to a number of market and credit risks arising from our normal business activities. Market risk is the possibility that changes in interest rates, currency exchange rates or commodity prices will adversely affect the value of our financial assets, liabilities or expected future cash flows. Credit risk is the failure of a counterparty to perform a payment obligation under a commercial contract or a derivative contract.
152
Petrobras
PifCo
Total
Outstanding as of December 2009
Quantity
Fair Value(1)
+10% Sensitivity
1,400
0
17,219
33,852
175
927
2,342
0.11062
0.70023
1.64141
4.18797
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| (1) | Fair value represents an estimate of gain or loss that would be realized if contracts were settled at the balance sheet date. | |
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Interest Rate and Exchange Rate Risk The interest rate risk to which we are exposed is a function of our long-term debt and, to a lesser extent, our short-term debt. Our long-term debt consists principally of notes and borrowings incurred primarily in connection with capital expenditures and investments in exploration and development projects and loans to affiliated companies. Our short-term debt consists principally of U.S. dollar denominated import and export financing and working capital borrowings from commercial banks. In general, our foreign currency floating rate debt is principally subject to fluctuations in LIBOR. Our floating rate debt denominated in reais is principally subject to fluctuations in the Certificado de Depósito Interbancário (Interbank Deposit Certificate, or CDI) and in the Taxa de Juros de Longo Prazo (Brazilian long-term interest rate, or TJLP), as fixed by the National Monetary Council. |
We do not currently utilize derivative instruments to manage our exposure to interest rate fluctuation. We have been considering various forms of derivatives to reduce our exposure to interest rate fluctuations and may utilize these financial instruments in the future. The exchange rate risk to which we are exposed is limited to the balance sheet and derives principally from the incidence of non-real denominated obligations in our debt portfolio. See Item 5. “Operating and Financial Review and Prospects—Inflation and Exchange Rate Variation.” |
Total Debt Portfolio
2009
2008
21.9
26.2
75.9
66.5
2.2
7.3
100.0
29.1
39.5
49.0
34.3
21.89
26.22
100.0
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| (1) | Includes PifCo’s 2.15% Japanese Yen Bonds due 2016, where payment of principal and interest has been fixed in U.S. dollars under the cross currency swap described below. | |
2010
2011
2012
2013
2014
2015-2040
Total
Fair Value as of
December 31, 2009
1.2%
2.0%
2.5%
3.1%
3.6%
5.0%
1.9%
4.3%
1.0%
1.1%
-
1.5%
2.3%
3.5%
4.0%
6.5%
10.7%
12.9%
10.4%
10.0%
10.9%
9.1%
8,021
7,041
4,105
2,288
2,851
32,564
56,870
60,610
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| (1) | Includes PifCo’s 2.15% Japanese Yen Bonds due 2016, where payment of principal and interest has been fixed in U.S. dollars under the cross currency swap described below. | |
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PifCo PifCo faces market risks in the normal course of business, including interest rate risk, risk related to changes in oil and oil products prices, and risk related to changes in foreign exchange rates. PifCo makes limited use of derivatives to manage its exposure to these market risks. PifCo does not hold derivative instruments for trading purposes. Commodity Price Risk PifCo enters into derivative transactions in order to mitigate the impact of fluctuations in the price of crude oil and byproducts. |
PifCo uses futures contracts, swaps and options to protect its margins in anticipation of purchases and sales in the international markets, as shown in the sensitivity analysis above. Interest Rate and Exchange Rate Risk PifCo is not subject to material foreign exchange rate risk because 100% of its debt is U.S. dollar denominated. PifCo does not enter into derivative contracts or make other arrangements to hedge against interest rate risk. |