Per Reuters, Brazilian energy giant Petroleo Brasileiro S.A. or Petrobras PBR has selected Bank of America Merrill Lynch to manage its multi-billion dollar asset sale plan. The company is also said to have contacted a host of energy sector giants for the sale of these assets.
Petrobras remains the biggest debtor in the oil industry with a total debt of about $170 billion. Also, the recent money laundering case and weak crude prices continue to burden financials.
Petrobras is said to have contacted 10–15 of the biggest companies from the oil and gas sector about its divestment plan. These include Exxon Mobil Corporation XOM, TOTAL S.A. TOT, Royal Dutch Shell plc RDS.A, BP p.l.c. BP, Statoil ASA STO. The company is expected to raise $5 billion from the divestments.
However, uncertainty still lingers regarding the assets to be sold and also whether Petrobras would give away operating rights over the same. Petrobras had mentioned that it would not sell its interests in Brazil’s ‘subsalt region’ but may offer participation and operating rights. The Carcará and Jupiter subsalt projects may be up for grabs.
Assets sales are a comfortable option for the company to raise funds. Petrobras had announced non-core asset sales worth $13.7 billion during 2015 and 2016. This is substantially higher than its prior divestment program of $5−$11 billion within 2018. The sharp increase in the expected asset sale might be a reflection of the company’s reduced access to capital from outside investors.
In another move to raise funds, Petrobras recently announced the sale of 100-year bonds worth $2.5 billion. These high yield bonds commanded high demand from investors.
Additionally, Petrobras is expected to release its new 2015-19 investment plan in June. The new investment plan is likely to involve a significant drop in capital spending. The current five year plan (2014–18) estimates investments of $208.6 billion. Funds from the company’s proposed divestments should support these capital investments.
While Petrobras may be able to drive profits through its downstream segment, growth from the pre-salt region and sale of non-core assets, its huge debt burden continues to weigh on financials.
Currently, Petrobras carries a Zacks Rank #3 (Hold).
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