Petrobras Said to Cut Exploration Spending in Cash Crunch

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Petroleo Brasileiro SA, the biggest oil producer in ultra-deep waters, is curbing refining and exploration spending in response to the collapse in prices and difficulties tapping debt markets during a corruption probe, said two people with direct knowledge of the matter.

The state-run oil company known as Petrobras plans to freeze investments in the Premium I and Premium II refineries in northeastern Brazil and sell assets to protect its cash position, said one of the people. The exploration cuts will focus on projects that are behind schedule, they said. Both asked not to be named because the information isn’t public.

The stock erased a 6.8 percent drop to surge as much as 8.1 percent in Sao Paulo. It was up 5 percent to 9.64 reais at 2:42 p.m. Petrobras didn’t respond to e-mails seeking comment.

“This is totally beneficial for the company, as they can build cash,” Henrique Kleine, an analyst at brokerage Magliano, said by telephone from Sao Paulo, referring to the refinery plans. “The stock price is so low and that brings strong volatility.”

Petrobras, the most indebted publicly-traded oil company, is trading at the lowest since 2004 amid an expanding investigation into contractors who allegedly bribed company officials. The oil producer has delayed reporting its financial results while independent investigators conclude their reports in what has become Brazil’s largest-ever money-laundering and corruption scandal. Shares tumbled 9.2 percent yesterday.

Writedown Discord

Petrobras has said it needs to release audited results to access foreign capital markets. The delay in reporting results came after the company’s board couldn’t agree on the size of writedowns stemming from graft-related costs, a person with direct knowledge of the issue, who asked not to be named because the information isn’t public, said last week.

The company must report unaudited results by the end of January to avoid breaching covenants on some of its bonds that could result in accelerated payments, it said in a statement Dec. 12.

Petrobras also plans to review its fuel-price strategy and curb operating expenses to preserve cash, which stood at 62.5 billion reais ($23 billion) at the end of September, it said.

The price of crude oil plunged through $60 a barrel for the first time in five years amid a supply glut.

While Petrobras is looking to contain spending in Brazil, it’s delaying a planned exit from Argentina’s petrochemical business as the graft case in Brazil slows signing of new contracts, two people familiar with that process said.

Petrobras received a joint offer for its 34 percent stake in Cia. Mega SA from partners YPF SA and Dow Chemical Co., said the people, who asked not to be named because the talks are private. Buenos Aires-based YPF owns 38 percent of Mega and Dow has 28 percent.