Petroleo Brasileiro Petrobras SA (PBR) continues aggressively borrowing and consistently outspending cash flow without a meaningful growth in production expected until 2014, a campaign that is particularly difficult in an environment of falling oil prices, says Pavel Molchanov, Analyst at Raymond James & Associates, Inc.
“This company has debt of $92 billion as of September 30. That’s just a stunningly large number for any corporation, even one as big as this one. That equates to a debt-to-cap ratio of 35%, by far the highest within its peer group. So to put that in perspective for you, Exxon’s (XOM) debt to cap is 7%, Chevron’s (CVX) is 9% and Petrobras’ is at 35%,” Molchanov said.
Molchanov says Petrobras is one of the least-conservative companies among the oil majors, and it is expected to continue borrowing in 2013 to fund its aggressive capital spending program and its dividend, possibly increasing the $92 billion debt to levels as high as $111 billion, worsening leverage ratios, which he says is troubling.
“Last year production was flat. In 2012 it’s actually down, and it’s going to be essentially flat again in 2013 and may resume meaningful growth only in 2014. In the meantime, the company is borrowing billions of dollars every quarter, and in the context of a downward trend in oil prices that’s not a very sustainable strategy. Although the stock is already down sharply year to date, we just don’t see much reason for it to go up over the next six to 12 months,” Molchanov said.
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