Petrobras To Divest Refinery Assets To Trim Leverage

(Zacks, 1.Jul.2019) — In a bid to forge ahead with divestment goals, Petrobras has commenced the process of offloading four refineries namely Rnest, Rian, Repar and Refap. The move is part of a broader plan of the Brazilian oil giant to jettison eight of its refineries that constitute 50% of refining capacity in the country.

The company’s CEO believes that the divestment of eight refineries could fetch Petrobras as much as $15 billion. It intends to close the sale of one of the refineries by 2019-end. Fuel distribution firms like Raizen, oil explorers in Brazil and trading firms could be potential buyers of the refineries that Petrobras put up for sale. Notably, in June, the company inked an agreement with the Brazilian antitrust regulator CADE regarding the divestment of eight refining assets to encourage greater competition in the industry by attracting new players to the business.

The divestment plans are in sync with Petrobras’ aim of cutting debt levels and streamlining portfolio. As we know, its involvement in the Operation Carwash scandal has been a major overhang for the company, significantly impacting leverage metrics. However, the firm has been concentrating on slashing debt load through offloading non-core properties.While the company’s net debt of $100 billion peaked in 2015, concentrated efforts to lower leverage, boost liquidity through operational efficiency and divestment of non-core assets have helped Petrobras in deleveraging to a considerable extent. In 2018, its net debt declined to $69.4 billion from $84.9 billion a year ago and $96.4 billion in 2016.

Last month, Petrobras closed the $8.6-billion sale of the TAG unit to Engie SA-led consortium, marking the largest-ever single asset sale for the Brazilian energy giant. As we know, it revved up divestment targets last month and now aims to raise $35 billion through asset sales within the 2019-2023 time frame versus prior forecast of $26.9 billion. 

The company’s high capex forecast of $105 billion within 2019-2023 is likely to boost top-line growth. Boasting a lucrative portfolio, particularly in Brazil’s pre-salt reservoirs that lie below Espírito Santo, Campos and Santos basins in deep and ultra-deep waters, Petrobras intends to sharpen focus on these exploration areas.

The Zacks Rank #3 (Hold) firm is entering into various strategic partnerships with foreign oil giants to drive exploration momentum. In this regard, the company inked deals with major players like TOTAL S.A. TOT, Royal Dutch Shell plc RDS.A and Equinor ASA EQNR. Given enhanced production prospects especially in pre-salt reservoirs, Petrobras anticipates to boost oil exports by more than a third in the coming years.


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