Monday, September 16, 2013

Petrobras Eyeing An Uptake In Production, So Why Should You Avoid It?

The Brazilian energy giant Petroleo Brasileiro S.A (PBR), more commonly known as Petrobras, has been eyeing a turnaround but so far, it has fallen short of expectations. It managed to deliver a decent performance in its last quarter, but its ADR has fallen by 21.45% this year. The company is controlled by the Brazilian government through its 63% voting power. Petrobras has struggled with profitability because the business has been used as a tool to curb inflation. The company is eyeing an uptake in production in H2-2013, but I believe that, for now, investors should avoid this stock.

Asset Sale

Nearly two weeks ago, Petrobras announced the approval of a $2.1 billion asset sale. The company has a $9 billion divestment program outlined in its five-year business plan. The current sale was disappointing for investors as Petrobras sold its assets below market expectations. The company sold its 35% stake in block BC-10 for $1.54 billion to China's Sinochem, nearly $160 million below analysts' estimates. Nonetheless, the company has been operating under a pile of debt, and the current sale will lend Petrobras a hand to support its massive $236.7 billion capital expenditure plan.

Sinochem's investment in Brazil highlights the increasing footprint of Chinese energy firms in the emerging markets. China Petroleum and Chemical Corp (SNP), otherwise known as Sinopec, is aiming to construct a $20 billion 300,000 bpd refinery in Brazil through a possible joint venture with … Read More