The NYSE ticker for Petrobras, "PBR", makes sense, alphabetically speaking. Can it be entirely a coincidence, though, that one look at the Brazilian oil major's balance sheet makes you want to down a case of the stuff?
Petrobras, which on Friday reported its first-quarter numbers, admits it has a problem, with its chief financial officer saying:
Petrobras is a company with very high cholesterol levels, which is leverage.
This sickness has no doubt been exacerbated by the corruption scandal that has left Petrobras in the cross-hairs of the Department of Justice and taken down members of Brazilian president Dilma Rouseff's inner circle (she now faces an impeachment trial on separate allegations).
But Petrobras' plight is merely an extreme form of what has happened to the entire oil industry.
Petrobras' issue, other than corruption, is the billions plowed into developing Brazil's so-called pre-salt oil riches off the coast. Capital expenditure began to ramp up in 2008 and peaked in 2013, by which time Petrobras had invested almost $260 billion -- just in time for a once-in-a-generation oil crash. Government mandates requiring Petrobras to use a lot of local equipment and services in the projects added to the pressure. The relatively high cost of these barrels -- with a breakeven oil price for new projects of between $70 and $80 a barrel, according to Evercore ISI -- means it will be a long, long time before they yield a decent return on investment, if ever.
Petrobras isn't alone, though. Chevron's balance sheet has taken a hammering from its Australian liquefied natural gas projects, also timed to start up just as global gas prices have tumbled. Shell, meanwhile, has almost tripled its net debt since the end of 2014 due to the acquisition of BG Group -- which, again, isn't the best advertisement for oil majors' sense of timing. And all of the traditional majors are struggling to generate positive free cash flow; certainly, they aren't making enough to cover their sacrosanct dividends.
Here, at least, Petrobras can be happy to be leading the pack. And it stopped paying cash dividends a while back. Still, when your net debt is almost 20 times that free cash flow number, probably best not to pop the champagne corks just yet.
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