Petroleo Brasileiro Petrobras SA (ADR) (NYSE:PBR) shares have benefited recently from a small bump in oil prices along with the announcement that they will be selling some assets in a effort to strengthen the company’s balance sheet. Airstrikes in Libya created the impression that the glut of global oil inventories may ease as the country might stop all production. The company also has announced it will accelerate its divesting plans in an effort to create stronger cash flow and address the large debt on its balance sheet.
Troubled Oil Producer
The company is looking to sell off as much as $13.7 billion of its assets. This is over a two-year period and is in an effort to find the cash to reduce existing debt. It is seeking to increase the size and rate of the disposals as the amount of debt they have incurred is massive. The management is acting with a serious sense of urgency and that is making investors happy. The stock has recently taken a beating as plummeting oil prices have compounded with rising debt to create a perilous situation for the company. The execution of this effort is complex and there is little room for error. They need to reduce their leverage, preserve what little cash hey have and make prudent investments with the limited resources they have available.
The company has already approved the divestment amount to $11 billion for the period of 2014 to 2018. This is compared to the original total of $5 billion that had been approved earlier. They intend to continue to focus on gas and oil production in Brazil along with areas that offer high productivity and capital returns. Despite the issues, the company shows earnings that are about 18% higher than the industry average. This should be a positive but they also have incurred a substantial amount of debt in the process.
The stock has found support at its current level but until the company works out its internal issues, not much can be expected in the way of appreciation.