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Petrobras (PBR) to Vend 37 Oilfields for $823M to Trim Debt

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In a bid to improve leverage metrics, Petróleo Brasileiro S.A. or Petrobras PBR recently entered into two separate deals to divest its stakes in 37 oilfields for a total consideration of $823.1 million.


Per the first agreement, the Brazilian oil giant will jettison its stakes in 34 onshore fields to Brazil-based energy company, 3R Petroleum, for $453.1 million. The fields are located in the Potiguar Basin and have a production capacity of around 6,000 barrels of oil per day (bpd). Notably, $34 million will be paid on signing of the deal (which is due on Dec 7) and the remainder will be paid upon closure. 


Per the second agreement, the state-controlled company will offload stakes in three shallow water fields, located off the coast of Rio de Janeiro, to European company Perenco. These fields have a production capacity of 9,000 bpd. The total value of the transaction is $370 million, of which, Petrobras has already received $74 million upon the signing, while the remainder will be paid on culmination of the deal.


The deals are in sync with the company’s plans to revive financial health through the divestment program of 2017-2018, during which Petrobras intends to sell assets worth $21 billion. The same will also help the company gain additional liquidity, as it intends to increase investment in the ultra-deepwater projects.Importantly, Petrobras targets a net debt/EBITDA ratio of 2.5 in 2018 compared with 5.3 in 2015.


Petrobras’ money-laundering scandal resulted in a huge debt burden and scarred its credit metrics. As of Sep 31, Petrobras had a debt of around $80 billion, representing a leverage of about 50%.As a result, it intends to exit from non-core segments as well as shift its focus to sub-salt and pre-salt exploration, and production. 


The company’s committed efforts to improve liquidity and operational efficiency, along with ambitious five-year plans bode well. The Brazilian oil giant intends to boost average output from an expected 2.7 million barrels of oil equivalent per day (MMBoe/d) in 2018 to 3.55 million Boe/d by 2022. Notably, the Zacks Rank #3 (Hold) company recently announced that its total output in the month of October came in at 2.66 MMBoe/d, representing growth of 8% over the prior month. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.


Since Brazil eased nationalist regulations and opened the market to greater competition, international oil companies have started considering the region as a viable investment choice. Thus, Petrobras is entering into various strategic partnerships with foreign oil giants to drive exploration momentum. In this regard, the company has inked deals with major players like TOTAL S.A. TOT, Royal Dutch Shell plc RDS.A and Equinor ASA EQNR.Changes in regulatory environment along with rebalancing of priorities are likely to offer Petrobras various growth opportunities. 


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Petroleo Brasileiro S.A.- Petrobras (PBR) : Free Stock Analysis Report
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