It was a clear sell signal for Enron.
I worked with Enron during the early 1990s on some energy projects in Asia. They were smart, aggressive, swashbuckling types who could also turn on the Texas charm at the drop of a hat.
The Chairman, Ken Lay, primarily handled the power broker side of the business, schmoozing with world leaders and politicos.
Rich Kinder, Enron’s President, was the straight-talking lawyer and detail man who kept the train on the tracks.
But in 1996, Enron’s board decided not to give the top job to Kinder.
He promptly resigned to go into the hard asset pipeline business he preferred. McKinsey guru Jeff Skilling was selected to fill Kinder’s job with a mandate to plunge into the energy trading business.
You know the rest of the story…
But the lesson here is that who is at the top of big complex companies like Enron is a big deal. Corporate leadership changes can sometimes provide buy or sell signals.
This brings me to Brazil’s Petrobras (NYSE: PBR, Stock Forum).
Largest company in Latin America
Brazil is a big deal in Latin America, representing 40% of the region’s entire economic output. In some ways, it offers a better bet for investors than China since it’s a democracy offering not only a surging middle class but also abundant natural resources.
And Brazil has the largest company in Latin America – resource-rich Petrobras.
David Fessler writes and speaks about Petrobras often, and points out that the company has the potential to become the largest energy company in the world.
Petrobras CFO Almir Barbassa agrees, and in an interview with Forbes, said he expects the company’s oil production rate to match Exxon Mobil. Petrobras also discovered an unbelievable amount of deep-water reserves of both natural gas and oil.
So why is its stock trading way below its $70 high in 2008 and quite a ways from the $50 price it opened in 2010?
In my opinion, it’s because the company is being mismanaged by government appointed executives.
Mr. Sergio Gabrielli has been CEO since 2005. An economics professor with little oil and gas experience, he’s leaving this week to pursue “politics.”
His biggest mistake was the high-handed $70-billion public offering announced in early 2010. While it raised some capital from private investors, the government grabbed $42.5 billion in shares in exchange for “giving” the company the right to develop some reserves.
This brought the government’s ownership up from 40% to 48%.
Diluted private shareholders expressed their disappointment by the only vote they have – selling the stock.
The new CEO taking the helm today is a well-respected technocrat steeped in the energy business – Maria das Gracas Silva Foster.
While a confidant of Brazil’s president, she’s expected to be less political and more business. And as current head of Petrobras’ gas and energy group, she knows the business inside and out, plus how to manage the bureaucracy.
Could she be a Rich Kinder?
As you can see, Petrobras has recently begun an upward trend.
My advice?
Jump onboard now with a 15% trailing sell stop in case our hopes of much better management are dashed.