Petrobras woes deepen as debt rises

Updated 19 December 2012
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Petrobras woes deepen as debt rises

RIO DE JANEIRO: The decision this week by Moody’s Investors Service to put Petrobras on watch for a possible debt downgrade is the latest sign that the problems at Brazil’s state-led oil company are going from bad to worse.
It is also evidence that Chief Executive Maria das Gracas Foster, appointed nearly a year ago, has had little success in her push for a more efficient and profitable approach to the company’s politically charged and financially undisciplined plan to become one of the world’s top four oil producers by 2020.
Rather than cutting spending, Foster boosted the company’s five-year investment plan, already the world’s largest, by 5.3 percent to $ 237 billion in June. In the second quarter, Petrobras posted its first loss in 13 years.
Her response to that loss: a cost-control plan to cut “up to $ 7.8 billion” that is short on specifics. Since reaching an 11-month high in February only days after she took office, the company’s most-traded shares have lost 14 percent.
Other emergency efforts are also faltering. There have been few offers for the non-Brazilian oil fields and refineries Petrobras wants to sell, bankers told Reuters earlier this month. Nor is there much chance the assets will fetch the $ 14 billion Petrobras says they are worth.
“Cost cutting and asset sales are slow and difficult,” said Oswaldo Telles, oil and gas company analyst with Espirito Santo Investment Bank in Sao Paulo. “With Petrobras’ financial situation getting worse, the only thing that will provide certain relief is a fuel price rise.”
Blocked from raising fuel prices by a government trying to keep inflation in check, Petrobras’ refining unit has racked up more than $ 8 billion in losses this year. Revenue has been further hurt by falling oil output as older fields decline and new fields fall behind schedule or go over budget.
As a result, for the first time in more than a decade, Petrobras faces problems with its debt, something it will depend on until large scale offshore output and revenue comes on stream in 2015 or 2016.
This year, Petrobras will borrow about $ 25 billion, 56 percent above its planned annual average of $ 16 billion, the company said Dec. 10. Debt is now above the company’s self-imposed limit of 2.5 times EBITDA, or earnings before interest taxes depreciation an amortization.
“Debt has broken the ceiling and is already at 2.6 times EBITDA,” a source with direct knowledge of the company’s finances said. “Next year it could go to three times EBITDA and Petrobras could lose its investment grade rating.”
“Every time Foster requests a fuel price increase at a board meeting, Mantega dismisses it with a ‘give it a rest, this is not the proper forum for that,’” the source said, referring to Finance Minister Guido Mantega, who is also chairman of Petrobras’ board.
Brazil’s finance ministry did not immediately respond to requests for comment.
The loss of an investment grade credit rating would force many investors to sell Petrobras bonds and drive up its borrowing costs, making an already difficult situation worse. Since reaching an all-time low of 4.83 percent on Oct 19, the yield on Petrobras dollar bonds due 2040 have jumped 38 basis points to 5.21 percent.
“We hope that (Moody’s) decision to lower the outlook on Petrobras debt will alert the company and the government to the risk of an actual ratings downgrade and impact on the company’s borrowing costs,” Eduardo Velho and other oil analysts at Planner Corretora in Sao Paulo said in a recent report.
In other words, a fuel price rise is essential.
“Refineries are at 98 percent capacity, fuel demand is rising and we have to import more and more gasoline to meet demand,” the Petrobras source. “We can’t do that and continue to finance our expansion plan.”
The government, though, is already going ahead with plans to make Petrobras invest. The government owns a majority of voting stock in the Rio de Janeiro-based company, which is traded on the Sao Paulo and New York stock exchanges.
The government considers oil and gas to be the cornerstone of a plan to catapult Brazil to developed-nation status. After Petrobras found an oil bonanza in 2007, the government changed the country’s oil law in 2010 to give it and Petrobras more control of the industry and limit foreign influence.
After four years of stagnation, the country’s first oil rights auctions in more than four years are expected in 2013. A frontier area concession auction open to all is expected in May and the first-ever auction of prime “subsalt” areas under new production-sharing contracts is expected by November.
Under the subsalt production-sharing rules, Petrobras will have to own at least 30 percent of the area and operate all the drilling and production. Others can be financial partners only.
The New York-state-sized subsalt area may hold up to 100 billion barrels of oil, enough to supply all US needs for more than 14 years, according to Brazil’s National Petroleum and Gas Institute at the State University of Rio de Janeiro.
“Brazil has hitched the development of its main oil reserves to a single company, and that company is already stretched to the financial limit,” said Christopher Garman Latin American director of the Eurasia Group in Washington. “This problem is not going to go away, and we are probably in for a period of reduced production.”
With debt already beyond limits, restrictions on the activities of foreign oil companies, and a fuel price increase unlikely in the near future, Petrobras and the Brazilian government will have few choices, Telles said.
“If they don’t get an increase, Petrobras will probably have to do what investors fear the most — a capitalization,” he said. “The government will have to buy stock and dilute the minority investors.”


Energy giants spent $1bn on climate lobbying, PR since Paris: watchdog

Updated 42 min 38 sec ago
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Energy giants spent $1bn on climate lobbying, PR since Paris: watchdog

  • Firms under pressure to explain how greener laws will hit business models

PARIS: The five largest publicly listed oil and gas majors have spent $1 billion since the 2015 Paris climate deal on public relations or lobbying that is “overwhelmingly in conflict” with the landmark accord’s goals, a watchdog said Friday.
Despite outwardly committing to support the Paris agreement and its aim to limit global temperature rises, ExxonMobil, Shell, Chevron, BP and Total spend a total of $200 million a year on efforts “to operate and expand fossil fuel operations,” according to InfluenceMap, a pro-transparency monitor.
Two of the companies — Shell and Chevron — said they rejected the watchdog’s findings.
“The fossil fuel sector has ramped up a quite strategic program of influencing the climate agenda,” InfluenceMap Executive Director Dylan Tanner told AFP.
“It’s a continuum of activity from their lobby trade groups attacking the details of regulations, controlling them all the way up, to controlling the way the media thinks about the oil majors and climate.”
The report comes as oil and gas giants are under increasing pressure from shareholders to come clean over how greener lawmaking will impact their business models.
As planet-warming greenhouse gas emissions hit their highest levels in human history in 2018, the five companies wracked up total profits of $55 billion.
At the same time, the International Panel on Climate Change — composed of the world’s leading climate scientists — issued a call for a radical drawdown in fossil fuel use in order to hit the 1.5C (2.7 Fahrenheit) cap laid out in the Paris accord.
InfluenceMap looked at accounts, lobbying registers and communications releases since 2015, and alleged a large gap between the climate commitments companies make and the action they take.

 

It said all five engaged in lobbying and “narrative capture” through direct contact with lawmakers and officials, spending millions on climate branding, and by employing trade associations to represent the sector’s interests in policy discussions.
“The research reveals a trend of carefully devised campaigns of positive messaging combined with negative policy lobbying on climate change,” it said.
It added that of the more than $110 billion the five had earmarked for capital investment in 2019, just $3.6bn was given over to low-carbon schemes.
The report came one day after the European Parliament was urged to strip ExxonMobil lobbyists of their access, after the US giant failed to attend a hearing where expert witnesses said the oil giant has knowingly misled the public over climate change.
“How can we accept that companies spending hundreds of millions on lobbying against the EU’s goal of reaching the Paris agreement are still granted privileged access to decision makers?” said Pascoe Sabido, Corporate Europe Observatory’s climate policy researcher, who was not involved in the InfluenceMap report.
The report said Exxon alone spent $56 million a year on “climate branding” and $41 million annually on lobbying efforts.
In 2017 the company’s shareholders voted to push it to disclose what tougher emissions policies in the wake of Paris would mean for its portfolio.
With the exception of France’s Total, each oil major had largely focused climate lobbying expenditure in the US, the report said.
Chevron alone has spent more than $28 million in US political donations since 1990, according to the report.
AFP contacted all five oil and gas companies mentioned in the report for comment.
“We disagree with the assertion that Chevron has engaged in ‘climate-related branding and lobbying’ that is ‘overwhelmingly in conflict’ with the Paris Agreement,” said a Chevron spokesman.
“We are taking action to address potential climate change risks to our business and investing in technology and low carbon business opportunities that could reduce greenhouse gas emissions.”
A spokeswoman for Shell — which the report said spends $49 million annually on climate lobbying — said it “firmly rejected” the findings.
“We are very clear about our support for the Paris Agreement, and the steps that we are taking to help meet society’s needs for more and cleaner energy,” they told AFP.
BP, ExxonMobil and Total did not provide comment to AFP.

FACTOID

$ 28m

Chevron alone has spent more than $28 million in US political donations since 1990, according to the report.