The article examines the reasons that have driven Petroleo Brasileiro Petrobras to offload 49% stake in natural gas unit
Petroleo Brasileiro Petrobras is all set to close a deal with Mitsui & Co Ltd. to sell almost 495 ownership stakes in its natural gas distribution company. According to Bloomberg reports that an approval from Petrobras board of directors and Brazilian regulators are required before the completion of the deal.
Prices of crude oil are down drastically which has result in substantial difficulties for the oil company. Therefore, Petrobras has adopted a complex program of asset divestiture and has reduced its capital spending in order to cope up with the decline. Future outlook for crude oil is still grim for Brazilian oil majors as oil demand from China is most likely to remain weak. Furthermore, oil production from Iran is most likely to hit the market soon which would affect the demand supply gap. During trading session yesterday, West Texas Intermediate was down 1.69% to $45.89 per barrel. In the meantime, Brent crude oil was down 1.43% to $48.22 per barrel.
The Brazilian oil company is still involved in a huge corruption scandal. Several of the senior management of the company is alleged of corruption in contract dealings. The outcome of the interrogation against Petrobras has already taken down several senior officials of government in the country. Majority of construction and engineering firms have also been the part of the investigation and several infrastructure projects are stopped. The Brazilian currency has gone down substantially and experts fear that the oil company might lead the economy of Brazil into recession.
Last month, the company declared that it will cut its corporate cost by roughly $12 billion by 2019. Petrobras decided to cut come of its outsourced jobs by reducing on chauffeured cars, training programs, parties and some of the other perks.
In early trade today, Petrobras stock is down by 6.68% at $4.05. Since last year, the stock is down by more than 70%. Petrobras is the most indebted energy company in the world. A weaker exchange rate means that the company has to incur higher costs to service its debt. Hence, it has to streamline operations and become more efficient to survive in harsh market conditions.
The Street analysts are not around bullish on Petrobras stock. Almost 16 analysts covered the stock; put of whom, 12 gave it a Hold while only 2 analysts suggested a Buy rating and 2 of them recommended a Sell. The twelve month average target price stands at 7.86.
Petrobras stock quote was down 5.64% to $4.10 at Tuesday market close.
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