The Exception That Proves the Rule: All of the World's National Oil Companies Are Case Studies in Inefficiency and Partly to Blame for Rising Energy Prices-Except One. Robert Bryce Reports on Brazil's Petrobras, the State Oil Company That Succeeds by Not Acting like One

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There are many reasons oil is trading above $100 per barrel, including soaring global demand and the fading luster of the U.S. dollar. But perhaps the most important factor is the mismanagement and inefficiency of state-run oil companies. More than 90 percent of the world's oil and gas reserves are controlled by national oil companies or by Russian energy giants caught in the Kremlin's orbit. And as the price of oil and gas continues to rise, those outfits have less incentive to increase their production because they can collect the same amount of rent (or more) by keeping their production flat. Nor do these companies feel much pressure to operate in a transparent, efficient manner.

All of those facts make the recent successes of Petroleo Brasileiro SA, better known as Petrobras, even more notable. Indeed, at a time when most national oil companies--and most OPEC members--are seeing their output stagnate or decline, Petrobras, Brazil's national oil company, is dramatically increasing its output.

And without that new Brazilian production, today's oil prices would likely be higher. Between 1997 and 2007, Petrobras's oil production doubled to about 2 million barrels per day. By 2015, the company expects its production to double again. At that level, Petrobras would be the undisputed energy superpower in the Western Hemisphere, with output almost twice that of national oil companies PDVSA of Venezuela or Mexico's Pemex. And given its surging output, Brazil is reportedly interested in joining OPEC.

So how did Petrobras evolve into such a successful company while its fellow national oil companies have stalled? There are a number of reasons for its remarkable success, and most of them have to do with Petrobras's embrace of capitalism and transparency. Now the world's tenth-largest producer of liquid hydrocarbons, Petrobras has become an elite global energy player by doing what most other national oil companies refuse to do, including selling shares of the company to the public. And while many other big oil exporters, particularly within OPEC, either refuse to disclose their production data or publish fictitious numbers, Petrobras issues frequent press releases that discuss the latest developments within the company, including production trends, financial conditions, and new discoveries. And there have been plenty of new discoveries.

Last November, the company announced the discovery of the offshore Tupi field, a deposit that may hold 8 billion barrels of oil equivalent--one of the largest oil finds in decades. Since then, it has announced numerous smaller, but still significant, fields containing huge quantities of oil and gas. The Tupi discovery alone could make Brazil the 12th largest holder of oil reserves. (It currently ranks 17th.)

Those discoveries are remarkable when compared with the dismal results being reported by PDVSA and Pemex. Art Smith, a Houston-based energy investor and founder of Triple Double Advisors, an energy-focused investment fund, says that "Pemex and PDVSA don't lack for available resources; they lack the intelligent allocation of capital and technical skill." Unlike Petrobras, "PDVSA is doing almost everything wrong," he says.

The numbers back up that assertion. Since Hugo Chavez was elected Venezuelan president in 1999, PDVSA's output has fallen by about 30 percent. And with Chavez's gross mismanagement of the company, production declines are likely to continue. While Petrobras has worked to increase the technical skills of its employees, Chavez has cleaned house, removing employees that were thought to be disloyal to his "Bolivarian revolution." In 2002, after a period of unrest, about 20,000 PDVSA employees, including many of the company's most technically skilled, were fired. The resulting brain drain has hampered the company's ability to develop Venezuela's vast resources, which include some 80 billion barrels of oil and 152 trillion cubic feet of natural gas. …