Petrobras Plans $17 Billion Investment
Brazil’s state-owned oil giant Petrobras has announced plans to invest $17 billion in a massive expansion plan, part of the funds will come from a $8 billion worth of company assets that would be sold this year.
The announcement was made at the beginning of August by Petrobras and sent to various news outlets for publication.
The presentation also showed the company’s 2nd quarter financial results, whereby they are expected to refinance around $13 billion worth of company debt and generate close to $27 billion in liquid cash. Board executives further said Petrobras wasn’t considering any debt sales in global markets, but only focusing on local investors.
Earlier on, the firm had announced 2nd quarter profits per ADR of about 8 cents, going below estimates projected by the Zacks Consesus Estimate institute of 15 cents. A considerably higher tax outgo triggered by recent state levy adjustments is considered the primary reason behind this underperformance, though partly offset by increases in crude price and rate cuts.
In July alone, the Brazil-based company produced an equivalent of 2.74 million bpd of natural gas and oil, translating to massive profits that would partly be used to finance the expansion program.
Petrobras generated free currency flows of about $2,907 million for the 4th financial quarter of 2017 ending June 30th, marking a positive sales volume for the ninth fiscal quarter in a row. This is a good sign of operational efficiency and balanced investments by the company.
Furthermore, modulated EBITDA stood at 2pct year-on-year to come in at $5,934 million. The state-run oil company also witnessed net operating profits of $20,823, a rise from the previous year’s sales of $20,320 million, though still falling below the estimation given by Zacks Consesus Institute of $23,781 million.
In the financial period running from January-June, average sales price of petrol in Brazil increased by 42pct from the previous year rate to $48.98 per barrel. Moreover, in comparison to the first half of 2016, this year Brazilian oil and gas output increased by 6% to 2,671 MBOE/d.
This allowed Petrobras’ upstream quotient to generate $5,362 million in profits during that period, a great improvement from the $628million average income in the previous year. Such positive market trends are what have motivated Petrobras to start their $17 billion expansion plan, with hopes to reap even more profits from the industry once the project is complete.
Nevertheless, a few setbacks were also witnessed despite the successes achieved. For instance, the company’s downstream unit listed at $3,114 million, a 47pct decrease from the preceding year’s amount of $5,887 million. This underperformance depicts lowered diesel and gasoline sales quotient, as well as decreased domestic crude oil products sales ratio.
In terms of operational costs, Petrobras’ administrative, sales and general expenses were at $1,424 million, 4pct lower than the earlier year. Selling costs also dipped by 2pct to $1,969 million.
Nevertheless, all in all Petrobras’ capital spending and balance sheet have been stable. During the half financial year ending 30th June 2017, their expenditures and capital investments averaged at around $7,230 million. A rate 7pct lower than the $7,814 million reported in 2016. Furthermore, over the past year the oil giant also cut back its workforce by 18pct through a special voluntary separation program.
This allowed them to trim on massive debt load, so that by the end of Jun 2017 they had a significantly lower net debt of $89,263 million, a decrease from the $96,381 million that was witnessed earlier in Dec 31 2016.
Therefore, overall net debt to capitalization ratio in the first half of 2017 was 53pct down from 55pct about 6 months ago. Furthermore, the company ended the first semester of this year with promising cash and cash-equivalents of $23,569 million. With such kind of success and available funds, it’s easy to understand why Petrobras decided to go into massive expansion.
Though the company was previously struggling, due to factors like the ballooning debt, weak price environment and corruption scandals involving senior politicians in the country, it has since made a sharp turn towards success after the management was restructured.
Its new board has taken radical steps in cutting down costs, boosting revenues and streamlining operations. Moreover, encouraged by high oil prices internationally that reduced debt ratios significantly, they are also hoping to increase their portfolio and market outreach.
If you would like to read more about Petrobras’s investments and plans for the future, visit their website directly here > Petrobras.