Back in 2007, when Brazilian state-owned oil firm Petroleo Brasileiro (NYSE:PBR) first discovered massive amounts of oil offshore, it seem like a hugely transformative moment for the nation. Brazil’s output had been falling, and deepwater finds represented a windfall for the government. Minority investors swooned, and Petrobras shares were off to the races.

Since that time, PBR continues to find more and more large-scale oil deposits off Brazil’s coast in a geologic layer known as pre-salt flats because they’re below a thick seam of salt.

Yet, after the initial surge of enthusiasm, investors today seem less than encouraged.

Since 2010, Petrobras shareholders have lost more than a quarter of their money, and earnings have recently turned sour. In August, PBR posted its first quarterly loss in 13 years, and the most recent quarter was only so-so.

With Petrobras recently announcing another new huge oil discovery, you have to wonder if it’s finally PBR’s time to shine, or if it will always be an underachiever?

The Good

Petrobras has a problem most other energy firms would kill for: It’s awash in proven and potential reserves.

A variety of major oil and gas firms like Exxon Mobil (NYSE:XOM) have been struggling with aging fields and have gone on acquisition sprees to get access to natural gas and crude oil. But Petrobras’ pre-salt oil deposits below the Atlantic Ocean hold an estimated 123 billion barrels of reserves, and as the state energy giant, PBR has have access to all of them.

Last year, Brazilian lawmakers passed a bill making Petrobras the prime operator of all new exploration licenses in the pre-salt and other areas deemed strategic, i.e., all of them. The firm has been using that position and its $237 billion five-year capital spending program to its advantage and continues to get access to the nation’s offshore energy bounty.

Petrobras’ latest monster find is just another example. On Jan. 15, it announced that it discovered good-quality oil in its South Tupi area. Preliminary evaluations indicate that the find may be linked to the giant Lula Field. The Lula and Santos Basin are some of the world’s most promising oil frontiers and could be one of world’s largest oil discoveries in the last 30 years.

The Lula Field holds roughly 8 billion barrels of crude oil, enough to supply the U.S. for about 14 months.

The South Tupi find comes within days of Petrobras announcing that it deemed two offshore oil fields in the Campos Basin — holding an estimated 350 million barrels — commercially viable for drilling. And just before that, the energy giant said a promising  find called Carcara was expected to start production in 2018.

The Carcara discovery could be especially lucrative because it’s among the thickest reservoirs ever discovered offshore Brazil.

The Bad

So, reserves certainly aren’t an issue for Petrobras. But it does have some blemishes, the biggest being Brazil itself.

Democracy in Latin America still remains very populist-based, and when you’re a company majority-owned by the government, you dance when it says so. While Brazil isn’t nearly as bad as Argentina — just ask investors in YPF (NYSE:YPF) — it still has a very populist agenda.

Since 2006, the Brazilian government has capped gasoline prices to combat inflation. And to meet rising demand, it has required Petrobras to import above what it doesn’t produce. Those imports have been typically sold at a loss.

It also must hire workers and buy supplies locally, and it has been ordered to build refineries in the poor northeast to promote regional development. Plus, the company’s board is made up of Brazilian government officials, and current President Dilma Rousseff has made social reforms a core strategy of her administration.

Essentially, Brazil’s government has used the energy giant as an all-inclusive policy tool. That hasn’t gone well with shareholders, and the stock has fallen from the low $70s in 2008 to just under $20 now.

Rising debt — offshore drilling is expensive — and maintenance issues have complicated matters further.

The Ugly

Investors considering the Brazilian energy powerhouse find themselves in a pickle.

Petrobras certainly has the reserves and accounts for more than 90% of Brazil’s oil output. That number should stay high because any other firm wanting to do business in the pre-salt flats has to partner with Petrobras. And let’s face facts: 123 billion barrels of crude at $100 a barrel is a lot of moolah.

Still, the firm’s output from these reserves has been less than stellar, and government intervention is messing with PBR’s potential.

So, which is it: value or value trap? Sadly, I’m more inclined to believe the latter. I anticipate that Petrobras will always be just a tool of the state in some fashion, and it’s really tough to get state-controlled firms to act in shareholders’ best interests all the time.

Those looking to take a long-term energy position may want to bypass the firm and move to greener pastures. Besides, odds are you already have plenty of exposure to Petrobras because it’s top-five holding in almost every emerging market mutual fund or exchange traded fund. No sense in doubling up on a potential value trap.

As of this writing, Aaron Levitt didn’t own any securities mentioned here.