Petrobras Record Loss Surprises Analysts as Oil Rout Bites

  • Biggest-ever writedown is more than a third of market value
  • `Just when you think Petrobras can't get worse, it does'

Petroleo Brasileiro SA, the oil producer at the center of Brazil’s largest corruption scandal, reported a record loss that surprised analysts and sent shares lower.

The fourth quarter net loss of 36.9 billion reais ($10.2 billion), caused by unprecedented asset writedowns linked to falling oil prices, compared with an average profit forecast of 3.48 billion reais from six analysts surveyed by Bloomberg. At 46.4 billion reais, the impairments equated to more than a third of Petrobras’s market capitalization and exceeded the equity value of 97 percent of publicly-traded firms in Brazil.

The writedowns mark the latest blow in a stunning fall from grace for a state-run oil producer that ranked among the world’s five largest companies as recently as 2008 and was a symbol of national pride for many Brazilians. While Petrobras has slashed investment plans and announced asset sales to weather an expanding pay-to-play scandal, the company is getting battered by oil’s 58 percent slide over the past two years and a recession at home that has curbed demand for its fuel.

“Just when you think Petrobras can’t get worse, it does,” James Gulbrandsen, a Rio de Janeiro-based partner at NCH Capital, which manages $3.2 billion, said in an e-mail.

Shares fell 3.1 percent to 7.81 reais at 10:21 a.m. in Sao Paulo. Petrobras doesn’t plan to pay any dividends from 2015 after reporting an annual loss, Chief Executive Officer Aldemir Bendine said at a press conference in Rio on Monday.

Lower Reserves

“The magnitude of the loss and continued lack of visibility in terms of the need for future provisions related to tax expenses and other factors” will discourage investors, HSBC Holdings Plc analysts Christian Audi and Gustavo Allevato said in a note to clients Tuesday.

The bulk of the impairments are from oil fields currently in production, Petrobras said. Some of the writedowns could reverse if prices improve, and the company continues to cut costs and sell assets to endure the downturn, said Bendine, a former banker who took the helm at Petrobras just over a year ago to guide the company through the corruption scandal and a mountain of debt.

“This is a four to five-year project to put Petrobras on more solid footing,” he said. “Naturally, variables like Brent prices and currency variation are not within our control.”

Petrobras cut its proven reserves by 20 percent last year after lower oil prices made some of its fields uneconomical. Proven oil, condensate and natural gas reserves totaled 13.279 billion barrels of oil equivalent in 2015, down from 16.612 billion a year before. The majority of Petrobras’s oil fields are in the deep waters of the Atlantic Ocean, making them more costly to develop than deposits in countries like Venezuela and Iran where most production is on land.

The company, which also wrote down the value of drilling rigs, refineries and some fertilizer projects, has been turning to alternatives outside the bond market to raise cash at a time when the oil rout and corruption probe have lifted borrowing costs. In February, Petrobras secured a $10 billion loan from China Development Bank Corp. as part of a deal to supply crude to the Asian country.

Petrobras cut investments 12 percent in 2015 to 76.3 billion reais, and continues to negotiate with suppliers to curb outlays. The company will continue to review it’s five-year business plan and will present a new version in mid-2016, Bendine said.

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