Brazilian state-owned operator Petrobras has released its Q1 financial results, showing its worth fell by $13.4bn as part of a cash impairment charge.
Company earnings did not, however, take a huge hit compared with the previous quarter. In Q1 2020, the company earned $17.1bn, compared to $19.9bn in the three months before.
The impairment charges are part of a reassessment of the worth of Petrobras’ assets. It is now assuming a “long-term” Brent Crude price of $50 per barrel, compared with the $65 per barrel its previous calculations were based upon.
This means the company expects lower cash flows, and therefore less worth from its reserves.
Another contributing factor was the decision to mothball platforms. In a statement, CEO Roberto Castello Branco said the company “mothballed 62 platforms operating in shallow waters that, in a scenario of low Brent prices, started to bleed cash”.
Beyond value losses, Petrobras has avoided the worst
He said this when talking of how the company was moving to achieve financial security. Aside from this, Petrobras has also reduced its annual capital spending (capex) by $3.5bn. It is also renegotiating contracts to postpone and lessen payments.
The company’s report states that apart from impairment charges, “all other operating expenses improved”. This has come at the cost of more than one third of its exploration budget,.
In April, Petrobras achieved its highest-ever export levels of one million barrels per day, which has helped support its results.
CEO’s opinion on the results
On the charges, Branco said: “We are not surprised by its devaluation in a more challenging environment.
“The net loss in no way affects Petrobras’ health and sustainability. This is a quite different situation from the one experienced in 2014-2015, when the company was facing two crises, one financial and another moral, and the impairments at that time reflected the company’s vulnerability.”
However, Branco warned of upcoming shut-ins: “We are reinforcing capital allocation discipline by carrying out a complete revision of our oil and gas exploration and production projects portfolio to decide which ones will be effectively implemented or reviewed in a price scenario of slow recovery to a level of $ 50/bbl. Competition for capital between projects has become more fierce and only those that pass this stress test will survive.”