Petrobras has struggled during recent years but a strong debt reduction plan holds the promise of a recovery.
In 2014, Petrobras was immersed in a political scandal which resulted in the company receiving a $2.95 billion fine, initiating a drop in the share price of almost 20% and losses from government fuel subsidies.
By 2014 Petrobras had accumulated $106 billion in debt and market value bottomed out at around $19 billion, down 90% from its peak in 2010.
Despite a troubling outlook, Petrobras has exhibited signs of recovery. Debt has reduced by 55% between 2015 and 2018, allowing the firm to reach a net debt of $69.4 billion by the end of 2018.
Petrobras latest signs of recovery
The 2019 to 2023 Petrobras business plan includes the divestment of assets and development of partnerships. By selling assets the company hopes to raise $26.9bn by 2023.
Declining oil prices, increasingly troubled Brazilian and global economic conditions, domestic politics and judicial decisions, could impair the company’s chances of executing its divestment plan.
However, in April, Petrobras sold 90% of the TAG pipeline to the French energy company, Engie, for the sum of $8.9 billion. This accounts for just under a third of the 2023 debt target and 89% of the company’s $10 billion debt target for 2019.
The business plan also aims to increase oil production by 10% in 2019 and then a further 5% year-on-year until 2023. In January the company got off to a poor start. Production fell by 3% in February, but Petrobras began production of oil in the Lula and Buzios reserves and plans to start up 10 new operations in between 2020 and 2023, likely returning the company back to its former glory.
Petrobras intends to make $84.1 billion in investments from 2019 to 2023 to fund exploration. The investment will aid the company in the discovery of pre-salt oil reserves and help meet production targets.
Higher than expected oil prices during 2018 helped Petrobras meet debt reduction targets. Production cuts in OPEC and Canada, paired with US sanctions on Iran and Venezuela and rising conflict within Libya, will continue to impair the production of oil and drive up costs. Higher oil prices will boost profit and aid Petrobras back to recovery.
So far Petrobras has had a strong start to the 2019 to 2023 business plan. The company, therefore, remains confident that it will continue to reach its targets – achieving a net debt to earnings ratio of 1:1.5 in line with its competitors by 2022.