Why Petroleo Brasileiro SA Petrobras (ADR)(NYSE:PBR) Dropped 8%?


In the last trading session, the stock price of Petroleo Brasileiro SA Petrobras (ADR)(NYSE:PBR) declined more than 8% after the state-controlled oil firm announced dismal third-quarter earnings. The downstream division was a drag as margins declined on lower product prices and higher crude prices. Weak domestic demand resulted in a decline in sales volumes.

The highlights

Goldman Sachs, stated the third quarter performance as disappointing, reiterating its “sell” call. A big part of the free-cash-flow gains can be accredited to lower capital expenditure, which although promising from perspective of liquidity, raises concerns around the position of future cash flow and execution of the firm’s five-year plan. Petrobras is still trying to emerge from a crisis led by a remarkable corruption scandal, a deep decline in oil prices and mismanagement. An asset sale plan worth $21 billion for this year and next has been restricted by court decisions stopping some deals.

Petroleo reported that it anticipates to record $7 billion from divestments in 2017, excluding a planned IPO for fuel distribution segment BR Distribuidora, as compared to the initial forecast of $8 billion. However, some market experts stated the firm’s gains on cash flow and debt as positive, predicting more gains in the coming period.

Credit Suisse stated in a client note stated that they see the story improving, mentioning a robust pipeline of divestments and prospective downstream associations, as well as anticipations for production growth and higher oil prices. The firm reported that the planned Initial Public Offering for BR Distribuidora could still advance in 2017. Sources told Reuters that the Initial Public Offering is projected to be priced in the month of December.

Petroleo Brasileiro injected $1.9 billion into the unit this year to lure investors caution of the distributor’s hefty debts. The company anticipates its final cash balance to hit $21 billion this year, as against $20 billion in a prior estimate. It lowered debt by 11% from the end of 2016.

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