Yesterday, the head of Brazil’s national tax authority, Lina Maria Vieira resigned after launching probe into so-called accounting irregularities at Petroleo Brasileiro S.A., or Petrobras (PBR), Brazil’s state-run oil giant.

Senator Romero Juca, head of the investing committee, also announced that the probe into the tax and spending policies of Petrobras will begin August 6, 2009.

The probe was initiated to investigate allegations that Petrobras has overpaid for services, and used accounting tricks to lower tax payments and that it has received support from Brazilian President, Luiz Inacio Lula da Silva, whenever it made charitable donations.

The investigation will delay the company’s $174.4 billion five-year investment plan. However, beginning this week, the company confirmed its intention to take part in the tender to drill for oil in the Carabobo area of Venezuela, which will help in increasing production outside Brazil from 244,000 barrels per day in 2009 to 341,000 barrels a day in 2010.

The recent recovery of oil prices from US$34 per barrel to US$61 currently creates a positive environment for Petrobras in the very short-term. Moreover, a gradual recovery of the Brazilian economy will help the company in the long-term.

According to information from the Brazilian Ministry of Development, Industry and Foreign Trade, Brazil recorded a trade surplus of US$15.244 billion in 2009, until mid July 2009, representing an increase of 18.8% year over year.

Thus, being optimistic on the company’s second quarter results in August, we maintain our Buy recommendation on PBR.
Read the full analyst report on “PBR”
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