Petrobras $58b Asset Sale

Petrobras $58b Asset SalePetrobras $58b Asset Sale

Petroleo Brasileiro SA’s $58 billion asset sale proposal would be unprecedented for the oil industry and impossible to pull off.

The plan, released last week by the Brazilian state-run oil company known as Petrobras, calls for $15.1 billion in divestments by the end of 2016 and an additional $42.6 billion by 2018, part of which will come from restructuring. The last company to come close to Petrobras’s target was BP Plc, when it sold more than $30 billion in a downsizing strategy after the Deepwater Horizon oil spill, Rigzone reported.

Chief Executive Officer Aldemir Bendine’s strategy is to cut debt without abandoning plans to develop oil discoveries 200 miles off the coast of Rio de Janeiro. Selling assets would help Petrobras avoid an alternate debt-reduction strategy that frightens shareholders—a dilutive share offering while the stock is near its lowest in a decade. But the assets are coming to market as a collapse in oil prices weighs on asset values and the financial wherewithal of would-be buyers.

The asset sales would almost halve by 2020 the company’s ratio of net debt to earnings before interest, taxes, depreciation and amortization, or Ebitda, Petrobras said in a filing last week. Currently that ratio is 5 times Ebitda, the highest for Petrobras since at least 1997.

At $57.7 billion over four years, Petrobras is proposing an average divestment pace of $14.4 billion a year, a mark that only two oil companies have ever hit: BP, after the spill, and ConocoPhillips with its 2010 restructuring, according to data compiled by Credit Suisse. Neither achieved that in consecutive years, as Petrobras is proposing.

At least part of the process is already underway. The assets include prized offshore oilfields in what is called the pre-salt region and stakes in pipelines, people with knowledge of the matter said in April. Petrobras has not publicly disclosed most of the details.