Petroleo Brasileiro Petrobras SA (ADR) (NYSE:PBR) announced its plan to sell $13.7 billion in assets as the company continues to face scrutiny over an alleged kickback scheme it participated in. Previously the company had announced the divestment but had stated the sale would only be for around $11 billion of the company’s assets. They plan to use the proceeds from the sale to lower the company’s outstanding debt and also provide some much needed liquidity. They will also use some of the funds to invest in the more profitable projects they are involved with. Of the assets to be divested, 30% will include exploration and production resources and about 40% will be in the gas and power properties currently owned by the company. The remaining percentage will be distribution assets.
Investment Pipeline Dries Up
The sudden change of the planned asset sales amount might be a sign that the company has run out of options with soliciting outside investors to provide capital to the struggling energy company. With its executives under government scrutiny over the money laundering scheme, there is little trust from outside sources. The company is being investigated for embezzling millions of dollars from the company’s funds. JPMorgan Chase has been hired to oversee the divestment.
The company is headquartered in Brazil and operates in the exploration and production oil and gas industry. They acquire the product from oil rigs, shale and other rock and also do refining along with trading of the commodities. As the company removes assets from its portfolio the opportunity for discovery and production dwindles and the move could be a double-edged sword for future earnings reports. Market prices have stabilized somewhat but the recent downturn hurt the whole sector. The addition of the money laundering charges though has taken the biggest toll though as investors shy away from being exposed to the company at all.
The stock has stabilized somewhat at this level but the uncertainty of the investigation is keeping it where it is. Until the issue is resolved, there aren’t many bright spots here.