Petrobras reported a net loss of $467m in Q2 2020, down from a profit of $7,818m a year ago. Majority of the company’s oil and gas presence are located in Brazil, up to 94% of their assets, followed by North America’s Gulf of Mexico assets of roughly 4%. As Brazil is hard hit by the Covid-19 ranked 2nd globally in terms of number of cases, it might take a longer time for the economy to recover and for demand to bounce back to the level it was before. A global economic slowdown has caused the decline in demand of crude oil domestically and internationally reflected in its Q2 earnings report. However, Petrobras managed to secure a bigger market share in Asia market, especially in China with record high export volume of approximately 600 thousand barrels oil per day (mbd).
In terms of refining, Petrobras suffered a major loss due to a much higher operation cost in 2019 and a depressed sale price in Q1 2020. Brazil domestic demand for refined oil products has declined while international export volume remains at similar level to 2019. Petrobras export volume increased drastically in Singapore and USA. Asia became the most dominant exporting destination for Petrobras in both upstream and downstream, accounting for more than 53% of its production in terms of petroleum and fuel oil.
In reaction to economic slowdown triggered by Covid-19, Petrobras is sticking with its strategy to allocate significant investment in its core assets, mainly pre-salt Buzios field and looking to add an additional FPSO capacity up to 990mbd by 2023. Petrobras suffered a significant loss in upstream exploration and production mainly due to their impairment of shallow water and ultra-deep water assets. The impairments do not have significant impact in their financial health and sustainability, but instead resulted in a balance sheet more connected to the market reality.
Aggressive portfolio management remains as Petrobras focuses to improve capital allocation by divesting its non-core acreage and assets with low returns on capital employed. Covid-19 has set Petrobras back to extend the deadline of the company’s binding offers, as buyers need more time to re-evaluate the potential of the assets. However, Petrobras foresees that the interest retains and expect to conclude the process by 2021. Petrobras is looking to divest $20m to $30m worth of asset up to 2021, mainly their eight refineries and many other non-core assets. The current prices might devalue the evaluation of these assets, which might impair their plan to reduce their debt to $60m by 2023.
