Ipiranga S.A.

Rua Francisco Eugenio 329
Rio de Janeiro 20948-900 RJ
Brazil
Telephone: +55 21 2574 5591
Fax: +55 21 2569 4836
Web site: http://www.ipiranga.com.br

Public Company
Incorporated: 1933
Employees: 1,588
Sales: BRL 21.29 billion ($6.93 billion) (2003)
Stock Exchanges: Bolsa de Valores do Rio de Janeiro
Ticker Symbol: PTIP
NAIC: 324110 Petroleum Refineries; 424720 Petroleum and Petroleum Products Merchant Wholesalers (Except Bulk Stations and Terminals); 424710 Petroleum Bulk Stations and Terminals; 447110 Gasoline Stations with Convenience Stores

One of Brazil's largest privately held companies, Ipiranga S.A. focuses on the domestic oil and petrochemical sectors. The company operates through the following primary divisions: Companhia Brasileira de Petróleo Ipiranga (CBPI); Distribuidora de Produtos de Petróleo Ipiranga (DPPI); Refinaria de Petróleo Ipiranga S.A. (RPISA); Ipiranga Petroquímica; Ipiranga Comercial Química; and others. Ipiranga also holds stakes in rival Copesul, among others. The company is one of Brazil's top three oil refiners—although far smaller than state-owned Petrobrás, which has long operated a near-monopoly on the country's refining market. Ipiranga is also in the top three in the distribution market, particularly through its network of nearly 3,500 Ipiranga gasoline stations. The company's active implementation of a franchising strategy, adding a variety of new services and amenities, such as convenience stores and the like, in its service stations, has contributed strongly to that operation; these services account for as much as 15 percent of the group's total sales, which topped BRL 21 billion ($6.9 billion) in 2003. Unable to compete with Petrobrás in the refined oil market, Ipiranga has shifted its focus to lubricants and related products, and also has targeted expansion in the GNV (vehicular natural gas) arena. Through Ipiranga Petroquimica, the company is a leading Brazilian producer of petroleum derivatives, such as polypropylene, solvents, and asphalt, among other products. Although the Ipiranga holding company remains privately held (and owned in part by the founding families), the company's DPPI, CBPI, and RPISA subsidiaries are all listed on the Brazilian stock exchange, Bolsa de Valores do Rio de Janeiro.

Founding Brazilian Refiner in the 1930s

In 1937, a group of Brazilian, Uruguyan, and Argentinean entrepreneurs, including Joao Francisco Tellechea, Eustáquio Ormazabaal, Herr Ribeiro de Matos, Oscar Germano Pereira, Manuel Moralles, and Raul Aguiar, joined to build Brazil's first oil refinery in Uruguaiana, the state of Rio Grande. The group's project had in fact been launched as a Brazilian-Argentinean partnership in 1933, as Destilaria Rio Grandense de Petróleo S/A, with the plan to distill petroleum products using imported refined oil from Argentina. Yet their plans were quickly thwarted when the Argentinean government passed legislation prohibiting oil exports.

Instead, the group took on partners in Uruguay and built their own refinery on the Ipiranga River. The company took on the name of Ipiranga S/A Cia. Brasileira de Petróleo and production began in 1937, and included gasoline and diesel oil, as well as kerosene and fuel oil. The latter two petroleum derivatives met with only a limited market, however, because of the predominance of wood-burning stoves and furnaces in the largely nonindustrialized region. Instead, the company used its fuel oil for the production of oil-based lubricants, and began exporting its kerosene production.

In 1938, however, the Brazilian government nationalized the country's oil industry and declared that only Brazilian citizens were to be allowed to own shares in the country's oil refineries. Ipiranga's shareholder group was forced to reorganize. Joao Francisco Tellechea and Eustáquio Ormazabaal remained primary shareholders, and the group's Argentinean and Uruguayan partners transferred their shares to Rio de Janeiro lawyer Joao Pedro Gouvêa Vieira. These three families were to remain in control of the company into the next century.

The outbreak of World War II cut short the company's supply of crude oil, and by 1942, with Brazil's entry into the war, the company's refinery operations were brought to a standstill. In 1943, however, the Brazilian government asked Ipiranga to begin developing a solvent specifically for use in the rubber industry. In this way, Ipiranga was able to reduce the country's reliance on imports. Ipiranga continued developing other petrochemical products. In 1948, for example, the company began producing sulfuric acid as a byproduct of the refining process. The company also began producing phosphate-based fertilizers and asphalt.

The end of the war had brought new engine technologies requiring higher octane fuel than that capable of being produced in the Ipiranga refinery. The company began construction on a modern refinery, which was opened to some fanfare in 1953. Just months later, however, the Brazilian government passed new legislation creating Petrobrás, the state-owned oil monopoly. Production at Ipiranga's refinery, therefore, was placed under a strict restriction of just 9,300 barrels per day.

During this period, as well, the company began developing its brand identity, launching the first Ipiranga brand campaign in 1955. The company had by then begun to supply gasoline to a number of service stations in the region. After the Brazilian government placed new restrictions on this sector, preventing refineries from selling directly to service stations, Ipiranga created a new company, Distribuidora de Produtos de Petróleo Ipiranga, or DPPI, in 1957.

DPPI took on greater importance for the company just two years later when it acquired the Brazilian operations of the United States' Gulf Oil Co. That purchase gave Ipiranga a network of 500 service stations. The purchase, for $4 million, marked the first time a domestic company had acquired a foreign-owned company in Brazil.

Ipiranga continued adding to its operations through the 1950s and into the 1960s. In 1958, the company created a new holding company, Icisa, for a number of its non-oil operations, which by then included production cans and oil drums, floor wax, and other products. In the 1960s and 1970s, the company entered sectors such as hotel operation, fishing, and the transport market.

Petrochemicals in the 1970s

Yet Ipiranga's core remained focused on oil and oil derivatives. In 1961, the company opened a new asphalt production plant, then inaugurated a new solvents facility three years later. In 1966, Ipiranga established a fertilizer subsidiary, Fertisul S.A. The company boosted its distribution wing with the purchase of Sociedade Abastecedora de Gasolina e Oleos, or SAGOL, in 1970. The following year, Ipiranga acquired ASSFRIO Asfalto Frio Ltda., which later changed its name to Ipiranga Asfaltos S.A., becoming the group's main asphalt operation.

In the 1970s, Ipiranga launched its entry into the petrochemicals sector, building two new distillation units at its refinery, including its own catalytic cracker. In 1976, the company joined with Germany's Hoescht and Brazilian government-owned Petroquisa to form Polisul Petroquímica S.A. in Triunfo, in South Brazil. That company later developed into Ipiranga's dedicated petrochemicals unit, Ipiranga Petroquimica. The Polisul facility began production in 1982. During the decade, production increased from an initial capacity of 60,000 tons per year to more than 100,000 tons per year in 1986. By 1990, with the addition of a second production unit, Polisul's capacity jumped to 220,000 tons per year.

The importance of petrochemicals to Ipiranga's operations was recognized in 1991, with the creation of subsidiary Ipiranga Comercial Química, devoted to the distribution of the group's petrochemicals production. In 1992, Ipiranga and Hoechst bought out Petroquisa's stake in Polisul, with each taking a 50 percent holding. After opening a third production unit in 1996, raising production to 350,000 tons per year, Hoechst sold its half of Polisul to Ipiranga, which then renamed the subsidiary as Ipiranga Petroquimica. By then, Ipiranga Petroquimica had become the first in Brazil to launch production of high-density polyethylene.

Ipiranga's distribution subsidiary also had grown strongly during the decade. In 1991, Ipiranga became the first in Brazil to begin offering GNV filling services at its service stations. The number of GNV-equipped stations remained limited, however. Yet Ipiranga's own network grew significantly in 1993, when the company acquired ArcoBrasil and its operating subsidiary Companhia Atlantic de Petroleo, the Brazilian distribution operations of the United States' Atlantic Richfield Co. The acquisition, which cost Ipiranga some $250 million, gave it control of Arco's 2,600 franchised service stations in Brazil, as well as logistics support operations. The acquisition also gave Ipiranga control of Arco's lubricating oil production facility and its grease production plant, the largest in Brazil. The purchase doubled Ipiranga's network of service stations and its share of the Brazilian service station market, and catapulted it from sixth place to third place among the country's leading gasoline distributors. Ipiranga continued to add to its network, and by 2004, the company operated more than 5,600 service stations throughout Brazil.

Company Perspectives:

The main mission of Companhia Brasileira de Petroleo Ipiranga S.A. is to produce and commercialize petroleum products and to provide service with maximum efficiency, satisfying market demands while respecting safety, the environment and occupation health.

Potential Petrobrás Target in the Early 21st Century

The deregulation and liberalization of Brazil's oil market, launched in the early 1990s, became fact in 1997 when the government eliminated the longstanding monopoly of its Petrobrás wing. Ipiranga quickly took advantage of the new market freedom, setting up a new subsidiary, Unidade de Novos Negócios (UNN), for its future oil and gas exploration interests, in 1998. The first of these came that same year, when the company joined in a consortium exploiting the BAS 97 and BCAM 1 oil fields in the south of Bahia.

In 1999, Ipiranga became a founding member of TSB—Transportadora Sulbrasileira de Gás, the consortium set up to build and operate a gas pipeline connecting Uruguaiana to Porto Alegre. Ipiranga's partners in the venture included Gaspetro, REPSOL-YPF, Total Petróleo, and Techint.

Ipiranga continued seeking out new oil and gas exploration activities at the dawn of the 21st century, signing on to several new projects by 2001. The company also joined in on a consortium building a thermoelectric power plant supplying energy to the fast-growing petrochemical industry in Triunfo.

Ipiranga began restructuring its operations in the early 2000s, simplifying its organization in order to attract new investment capital. The company also decided to pull out of upstream operations such as oil and gas exploration, and instead invest in developing its production of lubricants and GNV, both fast-growing markets in the approach to the mid-2000s. In the lubricants sector, the company hoped to boost its market share from 16 percent to 23 percent by the end of the decade. End products also took on a greater focus in the group's petrochemicals wing, which indicated its intention to begin distributing chemical products for pharmaceutical, cosmetics, and human and animal food sectors.

By 2004, however, Ipiranga's strong petrochemicals operations had attracted the interest of state-owned Petrobrás. After a long series of divestments in the early to mid-1990s, Petrobrás was in the process of reversing course, seeking to join a global petrochemicals industry trend toward greater vertical integration. Ipiranga appeared to be a natural choice for Petrobrás's new expansion aims. Nonetheless, the strong hold of Ipiranga's founding families on the group's shares appeared to shield the company from a hostile takeover attempt. After 70 years, Ipiranga remained one of Brazil's leading privately controlled oil and petrochemicals companies.

Principal Subsidiaries

Ipiranga Quimica; Ipiranga Petroquimica; EMCA.

Principal Competitors

Exxon Mobil Corporation; Royal Dutch Petroleum Co.; Eastern Oil Joint Stock Co.; BP PLC; Petrom S.A.; Sinopec Qilu Petrochemical Company Ltd.; SOCAR; ChevronTexaco Corporation; Petrobrás Distribuidora S.A.; Royal Dutch/Shell Group; Repsol YPF S.A.; El Paso Corporation; Venezuelan National Petroleum Co.

Key Dates:

1933:

Brazilians Joao Francisco Tellechea and Eustáquio Ormazabaal join with Argentinean investors to found an oil products distillery in Rio Grande.

1937:

After taking on Uruguayan investors, the group instead founds an oil refinery on Brazil's Ipiranga River, the first in the country.

1938:

The Brazilian government nationalizes oil production, and foreign investors are forced to exit the holding.

1943:

The company begins producing solvents for the rubber industry after cuts in oil supplies force a shutdown of the refinery.

1948:

Production of asphalt, sulfuric acid, and phosphate fertilizers is launched.

1957:

The company establishes the DPPI distribution subsidiary to operate service stations.

1959:

The company acquires Gulf Corp.'s Brazilian service station network.

1961:

The company opens a new asphalt production plant.

1964:

The company opens a new solvents production plant.

1970:

DPPI acquires the SAGOL service station group.

1974:

The company enters the petrochemicals market with the launch of a catalytic cracking facility.

1976:

The joint venture petrochemicals company, Polisul, is founded.

1982:

Polisul launches production in Triunfo.

1986:

Polisul production expands to 100,000 tons per year.

1991:

A new chemicals distribution subsidiary, Ipiranga Comercial Quimica, is created.

1993:

The company acquires Atlantic Richfield's Brazilian service station network, and becomes the third largest operator in the country.

1995:

The company becomes the first to launch production of polypropylene in Brazil.

1998:

The company begins oil and gas exploration and production operations.

2000:

The company launches a restructuring in order to simplify its holding structure.

2002:

The company announces plans to merge its two distribution subsidiaries, CBPI and DPPI.

2003:

The company announces its decision to exit oil and gas production and instead concentrate on the endproducts market.

2004:

Petrobrás announces its potential interest in acquiring Ipiranga.

Further Reading

Benedict, Roger, "Atlantic Richfield Co. Decides to Pull Out of Products Marketing Operations in Brazil," Oil Daily, October 12, 1993,
p. 1.

Goldeen, Joe, "Ipiranga Bets on GNV and Lubricants," Jornal do Comercio, June 25, 2003.

"Ipiranga Pulling Out of Upstream," LatAm Energy, August 13, 2003,
p. 12.

Kepp, Michael, "Petrobrás Oils Its Acquisition Wheels," Daily Deal, March 15, 2004.

Matthews, Chris, et al., "Ipiranga Posts US$38mn Net Profits in HI,"The America's Intelligence Wire, August 13, 2004.

Miller, Jason, "Ipiranga to Increase Lubricants Sales," Jornal do Comercio, July 22, 2003.

"Unification of Ipiranga Begins," Chemical Business Newsbase, March 25, 2002.

—M.L. Cohen