Business

Brazil Could Bailout Petrobras if Necessary: Pres. Rousseff

Brazilian President Dilma Rousseff said her government is willing to bailout Petroleo Brasileiro SA Petrobras, the state-run oil company, if the oil prices continue to decline.

“We do not rule out that it will be necessary to make an evaluation (of a capitalization) if this process continues,” said President Rousseff when asked by reporters in Brazil regarding the matter.

President Rousseff added that her government is concerned about the declining oil prices globally. Brazil does not have plans to auction oil blocks in the offshore region (subsalt) at current prices. She added the projects in the area are still viable.

Petrobras
Chart via S&P Capital IQ

Petrobras cancels plan to sell debentures

Petrobras decided to cancel its plans to sell debentures, which was intended to raise at least 3 billion reais($750 million). The state-run oil company said its decision was due to unfavorable capital market conditions. In October last year, Petrobras suspended the sale of its debentures temporarily.

Market observers suggested that the cancellation of the sale of debentures was another headwind for Petrobras. The state-run oil company was supposed to use the proceeds from the sale to finance a portion of its existing investment program and to extend the maturity of its debt. During the third quarter, Petrobras reported that its debt increased more than 21% to 506 billion reais.

Petrobras investment and production outlook

Petrobas also decided to reduce its production targets and investment plans until 2019 amid the plunging oil prices and massive domestic corruption scandal.

The state-run oil company now plans to invest $98.4 billion, down by 25% from its previously announced budget of $130 billion over the next few years. Petrobras still intends to divest $14.4 billion worth of assets to finance its expansion plans this year.

Additionally, the state-run oil company decided to cut its oil production target in Brazil in 2016 from 2.185 million barrels per day (bpd) to 2.145 million bpd. It will also lower its oil output target in 2020 from 2.8 million bpd to 2.7 million bpd.

“Petrobras has been making continuous improvements to its Business and Management Plan, and rapidly adapting to changes in its business environment, preserving its commitment to capital discipline and profitability,” according to the state-run oil company in a regulatory filing.

The stock price of Petrobas declined more than 8% to $3.29 per share per share at the time of this writing around 12:26 in the afternoon in New York. Over the past year, the state-run oil company lost 52% of stock value.

Today, the WTI crude and Brent crude are trading at $29.50 per barrel.