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© Reuters. Investing.com: Dear analysts and investors in late 2019, Petrobras disappointed the market by facing the “worst crisis” in the oil market, according to its CEO’s assessment. The pressure of falling oil prices with the price war between the Saudis and Russians and the drop in demand caused by restrictions on the movement to control Covid-19 add to the sharp devaluation of the real to reduce revenues from the company and increase your debt. .
The oil company has lived in recent months thanks to the financial market and was present in almost all monthly analyst portfolios in the second half of last year and early 2020. The secondary offering of Petrobras shares held by BNDES was a success in February, with the sale of R $ 22 billion of papers at R $ 30, a discount of only 1.6%.
The market, however, has changed. The company that was praised by managers for its disinvestment and debt reduction program accumulates losses of more than 40% in 2020, pressing the. The index fell just over 30% in the same period.
Understand in 3 points, and an additional risk, what happened to the company
1. Oil shock
Petrobras suffers in the stock market with the dispute between Saudi Arabia, leader of OPEC, and the largest producers of basic products, Russia and the US. The US, which detonated a historic production control agreement to eliminate global oversupply, with the Saudis increasing production and cutting prices to regain market share.
The flood of cheap oil could not find a worse environment in the international market. The advance of the new coronavirus pandemic led to measures to restrict travel, which destroyed the demand for fuel and crude oil.
In OPEC’s April assessment, demand for 2020 is expected to drop by an average of 6.9 million barrels / day. The peak of the maximum contraction is expected to occur this April with a demand of 20 million barrels / day less, around 20% of world oil production.
The environment of a gigantic oversupply caused a massive sale of oil contracts with physical delivery in May, which collapsed on Monday (20), reaching historical lows of negative US $ 40.32.
Yes, negatives.
With overproduction, low demand, and no available storage, merchants scrapped the contract and paid not to receive the product, driving the price into negative territory for the first time in history.
The pessimistic mood ended by putting pressure on the June contract, which was trading near $ 14 a barrel on Wednesday. Brent, a world reference and for Petrobras, followed the losses, to a lesser extent, quoted at just over US $ 20 per barrel.
With Trump’s direct intervention, the alliance between OPEC and Russia has been, albeit weakly, restored. An agreement has been reached to reduce 9.7 million barrels per day, but that should not cause global oversupply to shrink rapidly, as the reductions are expected to come in the medium term and stocks are full.
2. Fighting the Covid-19 reduces fuel demand
Covid-19 pollution control mechanisms with movement limitation crushed fuel demand in Brazil, Petrobras’ main consumer market. According to the National Agency for Petroleum, Natural Gas and Biofuels (ANP), this drop in demand caused by the coronavirus will be approximately 84% for aviation kerosene, 35% for gasoline and between 22% and 25% for diesel.
To deal with the weaker market, the state company plans to cut 200,000 barrels per day from its production. As a result, the average production would be 2.07 million barrels per day (bpd) in April, compared to an average of 2,394 bpd in the last quarter of 2019. The company’s Director of Exploration and Production, Carlos Alberto Oliveira, stated that this cut is adequate to face the crisis, but that the reevaluations are carried out constantly.
As part of the strategy, Petrobras announced hibernation – detention activities – on 62 platforms in shallow water fields in the Campos, Sergipe, Potiguar and Ceará basins, which, according to the company, cannot operate with low oil prices. . . With this, the company will reduce production by 23 thousand barrels per day.
According to company president Roberto Castello Branco, the company has renegotiated contracts and postponed payments to suppliers, and confirmed that the divestment plan should be affected by the current crisis. Despite all this, Petrobras has stated that it will not need to carry out massive layoffs.
Petrobras faces a delicate moment, almost a perfect storm. The fall in oil prices abroad was transmitted to the domestic market, in accordance with the state’s price policy, which combines the price of a barrel and the dollar. In 2020, the company already cut gasoline prices by 50% and diesel prices by 40% in sales to distributors.
Despite the cuts, UBS estimates that the domestic price is 15% higher for gasoline and 24% for diesel compared to abroad. This scenario opens up space for importers to capture part of the Petrobras market by bringing cheaper shipments from abroad, which puts more pressure on sales.
3. The dollar rises and the debt rises
The company’s revenues are pressured by falling prices, reduced sales volume and, to top it off, the devaluation of the real. With real income and dollar debt, the company always faces a difficult time when the local currency depreciates, but it tends to offset prices, which is not possible at this time.
In 2020, the real already lost more than 30% of its value against the dollar and broke a historical record this week when it exceeded R $ 5.40.
The exchange rate puts pressure on Petrobras, which has a net debt of around US $ 78.9 billion at the end of the fourth quarter of 2019. In financing, the company has US $ 6.7 billion maturing until 2021 – approximately R $ 36 billion at today’s price.
To help cash flow and liquidity, one of the company’s priorities, Petrobras withdrew credit lines for US $ 9 billion, while cutting costs and preparing for a scenario of up to US $ 10 in the price of a barrel of Petroleum.
The heavy scenario was not reflected in the company’s rating. Last Friday (17), Standard & Poor’s maintained the BB- rating for Petrobras, saying that cash flows and credit metrics should resume “considerable” in 2021 despite falling this year, believing “that the relationship Between debt and Ebitda, it should approach 4.0 times in 2021, considering a substantial improvement in oil prices and economic conditions. “
UBS reiterated its “buy” recommendation, betting that the company will be able to get through this difficult phase with spending and investment cuts and that it will resume divestments. The bank sees an increase of R $ 30%, with a target price of R $ 21.00 per share and R $ 23.00 per share.
EXTRA: Contamination of your employees.
Petrobras confirmed yesterday that 261 employees and contractors have tested positive for Covid-19 and have been trying to block transmission of the coronavirus, which is challenging in a complex environment such as oil rigs that house tens of hundreds of people in a single experience. collective
The impact of reducing its workforce on daily activities cannot be easily measured at this time, but at least four vessels supporting the platform’s activities are paralyzed by contamination.
The oil company said it performs rapid tests on all employees who board its rigs and quickly kills anyone with symptoms.
Comments
In late March, the brokerage firm Banco Safra updated the company’s projections. For the bank, “the relationship between oil supply and demand will continue to follow the fundamentals, since the environment of low prices in the short term eliminates inefficient companies from the market and delays new investments, reducing the supply side, since which is a Large investments sector. With the recovery in demand, prices are expected to rise. ”
According to analysts, the long-term projection is $ 50 per barrel for oil, against $ 60 previously. Regarding Petrobras shares, Safra still believes in above-average performance, betting on the recovery of the global economy. At the end of the year, the target price for PETR3 and PETR4 shares had been updated to R $ 24.40 and R $ 23.30 respectively.
BB Investimentos follows the same line, understanding that the current situation corresponds to an anomaly, and not a structural change in the market, and betting on a gradual recovery of prices in the coming months “as producers with high costs abandon the market, balancing supply and reducing blockages due to the containment of Covid-19. ”Therefore, considering that Petrobras practices a price policy linked to the international market, the expectation for the newspaper is optimistic as markets begin to recuperate.
Another point raised by the bank is that “Petrobras has already addressed a good part of its preventive measures, with the strengthening of liquidity, the decrease in operating expenses, the postponement of dividends and the reduction of production in fields with little water. deep, which have higher costs. ” In summary, BB Investimentos maintains a higher recommendation with a target price of R $ 23.50 for the year, for both PETR4 and PETR3.
The Elite Investimentos brokerage also maintains a positive position regarding the company’s actions, based largely on “current management’s commitment to efficiency and focus on its core business (oil and gas exploration and production)” highlighting the reduction in expenses, asset sales, deleveraging and operating efficiency, actions that will help the company deal with the fall in oil prices.
Another broker who remained optimistic about Petrobras was Mirae Asset, who predicted good results for the second half of this year after production cuts and OPEC’s price recovery. The main reasons for the corridor’s positive positioning is the greater participation of pre-salt exploration, “which offers a greater potential for evolution and radically reduces its exploration cost.”
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