According to a report published by Reuters, Petroleo Brasileiro SA PBR.A, one of the largest integrated energy firms in Latin America, is formulating a reorganization plan to save $500 million a year. The restructuring will involve merger of several business units, job retrenchments and streamlining of activities.
Both oil and natural gas prices have been weak for a considerable length of time, primarily owing to a supply glut in the face of lackluster global demand. This weakness in commodity prices has adversely affected the company’s financials. Crude oil price has nosedived from the $100 per barrel mark and has kept sliding since Jun 2014 to the current trading level of around $38 per barrel.
Also, Petrobras’ goodwill as well as share price has been severely affected by its involvement in a multi-billion dollar money laundering and bribery case. Moreover, the company is unable to procure money from either the bond or the equity markets to finance its growth projects.
The negative impact of the oil price slump, curtailed access to financing and changes in management because of this Brazilian energy behemoth’s corruption scandal, have resulted in the company’s dwindling operating cash flows and return on equity. It has also exposed the company to high debt management risk. Hence, to offset the effect of such headwinds, Petrobras has resorted to cutting costs, reducing capital spending and selling assets.
Petrobras is also planning to slash 5,300 jobs or 43% of its workforce with diverse non-operational responsibilities so as to lower spending. Additionally, the company is in talks with Pampa Energia to sell its 67.2% of stake in subsidiary, Petrobras Argentina. Petrobras sees selling its stake in the Argentine subsidiary as a means to improve finances and meet debt obligations of about $130 billion.
Headquartered in Rio de Janeiro, Petrobras engages in the exploration, development, and production of crude oil, natural gas liquids, and natural gas. Additionally, the company sells crude oil and oil products produced at natural gas processing plants in domestic and foreign markets. It is also involved in the refining, logistics, transport, and trading of crude oil and oil products. Moreover, the firm exports ethanol and invests in petrochemical companies.
Currently, the company carries a Zacks Rank #3 (Hold), implying that it will perform in line with the broader U.S. equity market over the next one to three months.
Some better-ranked players in the energy sector include Sasol Ltd. SSL, SunCoke Energy Inc. SXC and Vanguard Natural Resources, LLC VNR. All these stocks sport a Zacks Rank #1 (Strong Buy).
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