Economy & Energy
Year XIII-No 74
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Capital Productivity in the Oil Area in Brazil and at Petrobras

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  Text for Discussion:

Capital Productivity in the Oil Area in Brazil

and at Petrobras


1 - Introduction

The oil sector has been playing an important role in different areas of the Brazilian economy. It is confounded with Petrobras itself which, on behalf of the Federal government, had the oil monopoly for a long period (1954 / 1997) in Brazil. A study regarding the oil sector must therefore necessarily study Petrobras.

This organization produces on the average two million barrels of oil per day, employs more than 50 thousand employees and effectively contributes to the primary fiscal surplus of the country and it is the largest individual tax payer in Brazil. The primary surplus of Petrobras is about 10% of Brazil’s primary surplus. In 2008 alone the company had a turnover of more than R$215 billion, invested R$ 50 billion and profited more than R$ 30 billion. It is an international enterprise in joint ventures, Project Finance or in direct external participation (Petrobras, 2009).

But by presenting dispersed numbers or the partial productivity it is not possible to concretely evaluate the productivity of a determined organization. For this purpose it is necessary at least to evaluate the productivity of the capital and manpower input to calculate the total-factor productivity. This is defined as the ratio between the aggregated value and the capital stock or, as noticed Feu (2005), the inverse of the capital /product ratio (K/Y) that represents the average quantity of the product generated per unit of capital stock.

The same author ponders that theoretically a larger productivity can be due to an increase of the total-factor productivity, namely capital, labor and/or technology or an increase of isolated productivity of only one factor that is higher than the decrease of the other factor.

The labor and capital productivities can be negatively or positively correlated. In most practical cases they are negatively correlated: higher capital intensity decreases labor quantity per unit of the product, increasing the productivity of the labor factor and reducing the productivity of the capital factor. This is the expected theoretical behavior in the substitution of one factor by the other one.

In special cases the two productivities can be positively correlated and this happens when the allocated resources are provided together with considerable technology input and this can increase the productivity of all production factors.

So, after this brief introduction it is presented in what follows the objectives of this article and its methodology. Then a brief bibliographic revision about Pretrobras’ productivity is made and the investments and the capital stock of the organization for calculating the capital productivity are analyzed. In this item the productivity of investment in exploration and production (E&P) and the total investments are examined. Then the possible causes of the increase of this productivity and the preliminary conclusions are discussed. Finally, the bibliographic references and the annexes where are the data used in the graphics along the text are presented.

The objective of the present study, in accord with the Partnership Contract with MCT, is to understand how the capital productivity in the oil are behaves, mainly that of Petrobras, in order to propose measures to increase it, based on this initial diagnosis.


2 – Methodology and Justification

 The project with MCT in course foresees two phases. The first one corresponds to the present work that is focused on the oil sector (that practically coincides with Petrobras until 1997). In the second one, a specific study about capital productivity of Petrobras as an enterprise (or some of its units) and intends to use the case study technique and have access to the company itself. Alternatively, there is the advantage of information available from the São Paulo Stock Exchange (BOVESPA) and the New York Stock Exchange (NYSE). According to legislation, both the Brazilian Securities Commission (Comissão de Valores Mobiliários – CVM) and the Securities Exchange Commission (SEC) require that the companies listed in their respective Stock Exchange divulge their accounting and financial information for free access. Concurrently, Petrobras has a good data base in its site ( at the internet; furthermore, dissertations, thesis and periodicals and circulars and memorandums from Petrobras itself will be consulted.

E&P investments productivity is calculated using the value of oil produced in the studied period and external costs indications. For calculating the productivity of total investments the enterprise’s financial accounting is used.

The relevant fact for the present study is that there was a significant increase of total-factors productivity in Petrobras, namely it doubled between 1990 and 2000 and it is worthwhile to analyze it in the ambit of this Partnership Contract, focusing on capital productivity.


3 - Petrobras’ Productivity.

Since its establishment, Petrobras has been increasing its production annually as illustrated in Table 3.1 where it can be noticed that the average production in the 1980-1990 period was approximately threefold as compared to the previous 1970-1980 period. If at the end of the seventies the average production was approximately 200 thousand barrels/day, in 2009 it was 1.5 million barrels/day. This is due in part, as it will be shown below, to the experience accumulated along the years and access to deeper, more productive wells.

Table 3.1 –Petrobras average production






1960 - 1970

130, 758.28

1970 - 1980

185, 173.53

1980 - 1990

503, 205.26

1990 - 2000

911, 571.06

2000 - 2009

1, 424, 757.45

When Petrobras’ total-factors productivity is analyzed, as shown in Figure 3.1, it is noticed that it has significantly increased, since starting of a base of 100 in 1994 it reached almost  200 in 2002 (Boura, 2007 and Bridgman, Gomes and Teixeira, 2006).

Figure 3.1 –Total-Factors Productivity at Petrobras

source: Gridgman, Gomes and Teixeira (2006 p. 12)

Some studies (Boura, 2007; Bridgman, Gomes and Teixeira, 2005; Bridgman, Gomes and Teixeira, 2008) try to correlate Petrobras’ partial and total productivity increase to the start of discussions concerning the monopoly break (1994) of the same organization and when it happened it resulted in the issue of American Depositary Receipts (ADR´s) – shares issued and negotiated in the United States capital market. The thesis of such authors is that the simple menace of breaking monopoly and therefore menace of competition with other players was sufficient to produce large productivity gains.

This matter will be discussed further on as the authors of the present article contest this thesis and agree with the conclusion of Aragão’s paper (2005) that points out the more relevant factors associated with the previous discoveries at the Campos Basin and price variations that are important concerning increase of productivity and that should obligatorily be considered.


4 – Investments and Capital Stock.

According to Pinto Junior (2007) each one of the oil industry segments has capital-intensive activities mainly in the E&P phase due to the high risk (geological, political, etc.). This is accentuated in the case of Brazil where most of the extracted oil is in deep waters which demands larger investments.

Continuous investments in exploration techniques can limit the risk margin but it is true that only the discovery of oil in profitable quantities guarantees investment return. Even then there are risk factors that should be considered regarding global costs and prices.

In general, compensating oil prices and the existing geological perspectives concerning discoveries are the main factors that determine the investments pace. Regarding the influence of real price, Figure 4.1 illustrates the correlation between oil price and investments in the sector. One can infer from the figure that there is a direct and positive correlation between the two variables, that is, if oil price goes up investments increase the capital in oil exploration and production for two fundamental reasons: the enterprises have resources to do so and have better perspectives regarding profits from their investments (Aragão, 2005).

Figure 4.1 shows this clearly because whenever there was a peak of oil price investment have also increased. Evidently, for a governmental company like Petrobras, these investments tend to be mainly local as long as there are concrete perspectives for exploring and producing oil.

Figure 4.1 – Investments of Petrobras versus oil prices

It can be observed that oil international prices from 1994 on (year when the end of monopoly started to be discussed) begin an ascending path, except the 97-98 years when there was a reduction (due to the crises in Asia and Russia). In 1994 the average price of a barrel was US$ 23.00, in 200 it increased to US$ 36.00 and in 2007 it reached US$75.00. Since prices directly influence both capital and labor productivities, it is obvious that this is one of the reasons of the observed productivity increase.

It is also obvious that when prices grew practically between 25 – 50% annually investments in oil production would increase. It is interesting to observe that Petrobras kept the investment pace around US$ 4 billion annually even after the oil price decrease in 1986.

Observing Figure 4.2 and comparing prices in Figure 4.1 it is noticed that in spite of the prices decrease trend that persisted after 1986, the E&P investment curve continues growing.

Normally this increase or decrease in investments is reactive, as can be seen in the post oil shock in 1980. But in the case of Petrobras the Campos Basin discovery in 1974 and the development of deep water technologies as well as the self-sufficiency strategic plan regarding oil led to investments increase even before the oil prices recovery in the 2000s, with repercussion in productivity years later.

The policy of the state-owned company managed to bypass the governmental investment restriction at the time (they were accounted for in the public deficit). However, as it will be explained later, investment in the nineties was a little bit more than the necessary to restore the capital stock.

In Figure 4.2 it is noticed that E&P investments, except for the beginning of the seventies, have always exceeded those for supply. Comparing with the previous figure, it is observed that at the period of the 1979 price crisis the absolute priority of investments was in the E&P area because oil supply was a bottleneck for the trade balance of the country. It should also be considered that refining had high investments that led to self-sufficiency regarding the production of petroleum products in the seventies and in the 1980 oil price crisis, demand dropped indicating less necessity of investments in the area. In 2008, E&P investments reached US$ 14 billion.

In what regards supply, that involves refining and transport, it had a wave path in part due to the nature of this activity that depended at the time on Petrobras’ monopoly, namely essentially internal demand. In the case of E&P area, Brazil’s importing condition and the control of the external and internal trade assumed legally and/or in practice by the state-owned company before and after the liberation of the market guaranteed the absorption of all the oil produced. 

Figure 4.2 – Investments in E & P and in supply

According to Boura (2007) capital is the investment level made by a determined organization depreciated by a determined rate. In this specific case, the oil E&P area has a 5% depreciation rate. The rate used in the capital stock evaluation does not necessarily correspond to the accounting criterion of the sector but it takes into consideration the capacity of the investments made to aggregate value. In this case it is assumed that the average life of the equipment used in E&P is 20 years.

Figure 4.2 explains how the E&P investments follow a growing trend since the establishment of Petrobras. An investment peak centered in 1982 corresponds to the urgent need of equilibrating the trade balance after the 1979 oil price shock.

Still more illustrative is the correlation between the oil price and the number of exploration wells drilled, pointed out by Bridgman et. al. (2005) and shown in Figure 4.3. Even though the number of wells drilled is not by itself an index that could evaluate the exploration efforts (the wells can be in the surface, in shallow or deep waters, with variable depths), the coincidence in the price and E&P efforts clearly shows the correlation between these variables.

Figure 4.3 – Correlation between oil price and the number of drilled wells (Bridgman, Gomes e Teixeira, 2005)

 Figure 4.4 represents the investments, the depreciation and the variation of capital stock (difference between the two first quantities) and shows that the depreciation of E&P investments at the end of the eighties was almost equal to the depreciation. It should be mentioned that the linear depreciation (used here as a first approximation) is not adequate for E&P investments whose productivity has a delay relative to the investment year and furthermore increases in the following years.

 It should be taken into account that in the present analysis, sectors are being compared and this justifies the option for a simple depreciation as the linear one. In the analysis of the enterprise that follows the present evaluation, a depreciation curve that better corresponds to the capacity of generating products should be considered.

Figure 4.4 – Investment, depreciation and capital stock variation

Figure 4.5 shows the capital stock accumulated in the E&P activities and the investments curve.

Figure 4.5 –Capital Stock and Investment in E&P

It should be pointed out that the cold shock, that is, when oil prices plummeted, investments in prospecting and production did not stop but were in a much lower level than that of the 1975 -1985 period.

It is noticed a decline in these investments in the second half of the eighties that may be credited to crises  (Carneiro, 1988) and an oscillation downwards in the 1990s that may be due to the second crisis that affected Mexico, Russia and Asian countries and/or to uncertainties regarding the new legal arrangement.

 Concurrently it is noticed in the same figure the evolution of the capital stock that starts approximately at US$ 40 billion in 1986 and reaches almost US$ 80 billion in 2008 (values corrected to 2008)

In the adopted approximation of this study, also provisional (it is hoped that at the enterprise level the data treatment will be improved), the depreciation rate was considered constant and therefore independent of the investment age. In a next article in which a time-varying depreciation curve is considered (parabolic, for example) the calculation will be made considering the year of the investment and a more adequate depreciation rate.

It should be noticed that in the E&P sector the expected investments result is the increase of reserves and production. In the present analysis the values refer only to oil. The natural gas values will be added in due time (in a rough way, they follow oil as the Brazilian natural gas is almost all of it associated with oil in the considered period). The correlation between production and investment stock is positive but subject to uncertainties inherent to a risky activity.

Figure 4.6 shows oil production as a function of the accumulated capital stock and Figure 4.7 shows the reserves as a function of this capital stock. Obviously there is a relationship between these two quantities but a considerable lag between the curves along the period and investment is advanced relative to production and increase of reserves.

Figure 4.6: Capital stock and oil production

Figure 4.7 – Capital stock and assured reserves.

Investments at the end of the seventies and beginning of the eighties made possible the increase of production and reserves in the years that followed. It is expected that the large investment of the last years will result in their substantial increase in the next decade. The pre-salt discoveries (not yet incorporated to the reserves) suggest that this will effectively happen.

 In Figure 4.8 are presented the effective investments (addition to the capital stock) and the addition to the reserves that shows that there is a large lag between investments and discoveries. In the available data investments in exploration and production are connected and this makes the analysis difficult. Anyway, this is an expected lag. Actually there is no certitude in the exploration results mainly in the pioneering areas and persistence in exploration depends on the discoveries’ positive results. 

Figure 4.8 –Effective E&P investments
versus reserves increase

It can be observed that the large investments started in the second half of the seventies and that peaked in 1982 had results in terms of production with a lag of three years. The first large discoveries (Marlim and Albacora in 1984) happened only when investments were declining. Since it was necessary a considerable effort regarding technological development for exploring deep waters, the effective increase of reserves was reached in the nineties.

According to Boura (2007) when a given organization decides to invest it aims at one of the following objectives: increase the productive capacity, substitute equipment or modernize its installations;

Still in this context, when we analyze oil production and capital stock in Figure 4.9, disregarding the first year, there is a decreasing curve in the first years; this is entirely justifiable because the exploration was started in land (low investments) then production in the ocean (shallow waters) and later in deep waters with increasing investments and long term results.

But in the eighties there is an increase that reached its peak in 2006.

Figure 4.9 – Production (barrel/day) and Capital Stock in E&P (US$ 1980 million) in the previous year K(-1) and three years before K(-3)

Due to the fact that in oil (and gas) production the preponderant input is capital, this data is a first approximation of capital productivity by considering oil at a constant price of US$ 43.00 per barrel (average 1970/2008 price  in US$ of 2008). The production value (quantity x price) divided by the capital stock is always an upper limit of capital productivity since in the calculation of the aggregated value it would be necessary to subtract the external costs. This value is shown in Figure 4.10 and has a behavior analogous to that shown in Figure 4.9 (production and capital stock) since the production values per unit of capital stock ((barrel/year)/US$) is simply multiplied by one constant (US$43.00/barrel) resulting in the value of production on capital stock.

Figure 4.10: Oil value at 2008 prices and constant price (average value 1970 to 2008) divided by the capital stock

To obtain the capital productivity from the product value/capital stock ratio it is necessary to subtract from the value the external inputs of the product in order to get the aggregated value per capital stock. By definition this is the capital productivity value. This calculation can be made both from the oil sector and from Petrobras points of view. From the sector point of view, except for inputs such as fuel and services like that of transport, the aggregated value (that includes the capital and labor remuneration) is near to the product value.

From the Petrobras point of view, the aggregated value depends on the outsourcing of services both in the personnel part and E&P operations. In the case of outsourcing it is not part of the value aggregated by Petrobras but it is included in the value aggregated by the sector.

Figure 4.11 presents the result of the manpower evaluation concerning E&P (with and without outsourcing) showing that eventual gains in labor productivity can only be real from the point of view of the company (Boura, 2007).

Figure 4.11: Petrobras manpower including outsourcing in E&P activities (Boura, 2007)

Costs have soared and had tripled between 2002 and 2008 changing from 3.00 to 9.20 US$/barrel (Petrobras, 2009). These costs have practically followed oil price in relative values   (10% of the oil price), as shown in Figure 4.12. A probable explanation for this phenomenon is that since most of them are external costs, there is a division of gains among the participants when the product value increases (higher demand of services and equipment which increases inputs prices). Another explanation in the Brazilian case: it is due to the amplification of exploration, drilling and production to larger water layers, to drilling and production at increasing depths on the seabed, to operation in zones increasingly far from the seashore. And at the end of the period efforts were made to search and drill the pre-salt layers that needed huge initial investments that affected exploration costs but not production costs (not present in the period).    

Anyway these numbers demonstrate that there is room for capital costs reduction that motivated the creation of the Engineering, Procurement and Construction Excellence Center with the participation of exploitation, production and assembling companies as well as research entities. The optimization of all value chains (decreasing bottlenecks and therefore, costs), including specialized manpower training, development of suppliers and establishment of an industrial park for supporting the escalation of the oil industry were the basis for creating the Mobilization Program of the National Oil and Gas Industry – PROMINP, that created a vast network that gathered hundreds of participants aligned with the proposed objective. Another measure that will have a great impact is the creation of 37 thematic networks by Petrobras, that will invest hundreds of millions of Reais annually and that will give an unprecedented drive to technologies regarding production and refining as well as to gas activities and this will positively affect cost reduction. 

Figure 4.12: Evolution of oil prices and extraction cost.

If the extraction cost is subtracted from the product value, one has a first estimate of the aggregated value (product value – extraction cost). The ratio between this value and the capital stock can be considered as a preliminary value of the capital productivity and its evolution is shown in Figure 4.13. The results confirm that the productivity had an increase of about 200%.

Figue 4.13: Estimate of capital productivity evolution by two methods

Figure 4.14 shows the capital productivity evolution which has remained an ascending curve except in the 1990s; it should be noticed its evolution in the last 3 years. 

 Figure 4.14 – Estimate of capital productivity evolution

5. Use of the Aggregated Value in the Company’s Balance Sheet

Petrobras annually publishes its Balance where it declares the value aggregated by the enterprise in that year. The annual values corresponding to production and the total value were evaluated by Aragão (2005) and the data are shown in Table 5.1.

The values in current Reais were converted to US$ 2008 using the GDP in current R$ (IBGE) and US$ of 2008 (IPEA data). The ratio added value / capital stock was assumed to be the capital productivity.

Even though the productivity results show important annual discrepancies, the observed behavior is similar. A comparison of the methodologies should show the cause of this discrepancy and this will be made when the Company’s productivity will be analyzed.

Table 5.1: Capital productivity calculation in the E & P area.




Petrobras (R$bi)


(Oil and NG extraction




(R$ bi)








(Oil and NG extraction)


Capital Stock E&P (k3)


Capital Product.
































































































































*average exchange rate 2007.

** 2008 Dollar.

Finally one can compare capital productivity in the E&P activities in Brazil and Brazil’s productivity. For a preliminary estimate it was considered that extraction costs before 1990 were constant and equal to the value of that year (3.20 US$/barrel). The values so obtained were compared to those of capital productivity calculated in item 1. Figure 5.1 compares these values that show that even in the in E&P activity the oil productivity exceeded the average value of productivity in the Brazilian economy from 2002 on. It should be expected that the difference is still higher in the whole productivity chain. In 2007 Petrobras’ capital stock (K-1) was evaluated in the present report to be US$ 103 billion and the value added by the company in 2008 was US$ 81.4 billion and with a productivity of 0.79. If compared to the capital stock in 2005 (stock K-3) the capital productivity would be 1.00.

Considering the importance of investments in oil relative to the Brazilian global investments this is an important macroeconomic fact whose relevance increases when a large part of the aggregated value in the whole oil production chain is aggregated to Brazil. A in-depth evaluation of this parameter in the oil sector can help to decide which policy should be adopted in the Oil and Gas Sector mainly after the pre-salt oil discoveries.

Figure 5.1 –Capital Productivity comparison (Oil X Brazil)

 6.  Conclusions

Even considering that the results are preliminary relative to the objective of the e&e/MCT Partnership Contract, this report permits to draw some conclusions.

Since its establishment Petrobras has made heavy investments in E&P, mainly in technology and it has increased its capital productivity as a whole but mainly in this sector. This increase is logically a complex phenomenon and one of the objectives of the present study is to find an explanation for this fact. From the preliminary results presented here it seems clear that even though part of this productivity increase is due to oil price increase, there was a considerable increase (factor 2) in the physical productivity and this has technical and organizational reasons.  

Furthermore, it was noticed an apparently contradictory fact namely, productivity increases in periods of low investment. This is due to the natural delay between investments and production. This distortion can be corrected when it is considered an adequate delay for capital stock calculation.

The preliminary analysis of capital productivity in the oil sector notably that of Petrobras, shows that it is correct to choose this sector and this company as object of study. The capital productivity increase in a sector that has a high share in the global investment accelerates the growth of the country due to the larger reproduction capacity of the investment that is implicit in the high capital productivity.

The high increase of some costs shows that there is room for increasing capital productivity in the sector. The ample repercussion of this increase on the whole national economy depends on the capacity of the sector and its leading company of stimulating gains in all the productive chain. 

With the set/2008 crisis Petrobras has unleashed an ample movement of cutting costs. Furthermore, with the drop of oil prices, the prices of inputs for exploitation and production will trend to decrease too. On one hand the pre-salt is the result of high investments per field but with high physical productivity. On the other hand it requires high operational costs. Therefore it seems clear that now and in the future, on this side, in-depth studies and research on capital productivity will be an important course. 

During 30 years more than US$ 1 trillion will be invested in the pre-salt as well as additional US$ 14.6 billion/year in funding, that is US$ 438 billion in 30 years (assuming a production of 4 million barrels per day at an extraction cost of US$ 10 per barrel). Adding the announced investment costs regarding refining and transport as well as operational costs of US$ 8.6 billion per year or US$ 262 billion in 30 years for refining and transport identical to production (at a cost of US$ 6 per barrel) one has over US$ 1.8 trillion. Each well saved 1% represents in the period US$ 18 billion.

 The figures shown above represent strictly from the costs point of view the potential that justifies the in-depth study of the global and capital productivities. On the other hand considering production increase with the same cost or applied capital (due to technological gains and better management). one can imagine the following equation: production of 4 million barrels per day = US$ 280 million; in 30 years it would be US$ 2.5 trillion (assuming oil price to be US$ 70 and US$ 35 per barrel relative to duties and taxes). Therefore each 1% of gain in production represents in 30 years US$ 25 billion in added value.

Then one can see the dimension and scope of the present study of the e&e/MCT Partnership Contract as well as the need of in-depth studies about the subject in other ambits.


 Bibliographic References.

BRIDGAM. B.. GOMES. V.. TEIXEIRA. A. 2005. Sustainable Miracles: Protection and Competition in the Brazilian Oil Industry.

BRIDGAM. B.. GOMES. V.. TEIXEIRA. A. 2005. A Quebra do Monopólio e o aumento da Produtividade. Lições da Indústria de Petróleo do Brasil.

BRIDGAM. B.. GOMES. V.. TEIXEIRA. A. 2008. The Threat of Competition Enhaces Productivity.

BOURA. C. S. 2007. 2007. Aumento da Produtividade na Petrobrás: Quebra de Monopólio. Dissertação de Mestrado Profissionalizante em Economia. Faculdade de Economia e Finanças IBMEC.

FEU. A. 2005. Comportamento da Produtividade do Capital e sua Influência na Contabilidade do Crescimento. In O Futuro da Industria: Produtividade de Capital / Ministério do Desenvolvimento Industria e Comércio Exterior. Instituto Euvaldo Lodi / Núcleo Central. Brasília: MDIC/STI.

PINTO JUNIOR. H. Q. 2007. Economia da Energia. Fundamentos Econômicos. Evolução Histórica e Organização Industrial. Editora Campus.

ARAGÃO. AMANDA PEREIRA. 2005. Estimativa da Contribuição do Setor Petróleo ao Produto Interno Bruto Brasileiro:1955/2004. Tese de Mestrado apresentada ao Programa de Planejamento Energético da COPPE/UFRJ. Available at /



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