We issued an updated research report on the Brazilian state-run energy player, Petroleo Brasileiro S.A. or Petrobras PBR on Oct 16, 2015. The company is the largest integrated energy firm in Brazil and one of the largest in Latin America. However, much is yet to be achieved considering the firm’s scale of operations and investment base. Adding to the problems is the currently weak commodity price environment.
Petrobras is the largest publicly traded Latin American oil company, which dominates Brazil’s oil and gas sector. The company produces most of Brazil’s crude oil and natural gas and accounts for almost the entire refining capacity of the country.
The company recently decided to lower its 2015 capital spending from $28 billion to $25 billion. For 2016, Petrobras’ spending plan has been cut from $27 billion to $19 billion. Considering both years, the debt-laden company has lowered its future capital investment by $11 billion. We believe that this spending cut will help the company to clear its debts to a certain extent.
While Petrobras’ huge debt burden remains a concern, the recent loans from China offer some relief. The loan from China Development Bank Corporation totals $5 billion. The loan from China also includes two initial agreements with the Industrial and Commercial Bank of China and the nation’s Export-Import Bank for a total of another $5 billion.
However, Petrobras’ upstream operations continue to face the challenges of weak crude prices. Despite an increase in production volume, second-quarter upstream segment earnings resulted in a year-over-year decline of over 62% owing to a sharp fall in commodity prices. Other big energy companies that have been affected by weak oil prices are Royal Dutch Shell plc RDS.A, BP plc BP and Exxon Mobil Corporation XOM.
Additionally, the company’s involvement in the multibillion-dollar money laundering and bribery case has put the company’s credit rating at risk. This has made it difficult for the firm to find creditors.
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