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Petrobras Wins Financing Deal From CDB Worth $5 Billion


Brazilian state-run Petróleo Brasileiro S.A. or Petrobras PBR recently announced that it has signed separate deals with China Development Bank ("CDB") and Unipec Asia Company, a subsidiary of China Petroleum & Chemical Corporation SNP.

The financing agreement with CDB worth $5 billion will mature in 2027. Per the agreement, half of the payment of the financing contract will be made this month while the rest will be paid in January 2018, following the company's payment of $2.8 billion to CDB related to a loan taken in 2009.

The deal is in line with the company's liabilities management strategy. The lone agreement also signifies that the company has emerged from the threat to its credit rating caused by the multibillion-dollar money laundering and bribery case.

In the separate deal with Unipec Asia Company, Petrobras signed a 10-year long contract, which requires it to supply 100,000 barrels of oil equivalent per day (Boe/d). The integrated energy company‘s supply contract with Unipec Asia Company will replace a 2009 contract between the two companies, which was supposed to expire in 2019 and authorized Petrobras to supply 200,000 Boe/d.

About the Company

Headquartered in Rio de Janeiro, Petrobras is the largest integrated energy firm in Brazil and one of the largest in Latin America. The company’s activities include: exploration, exploitation and production of oil from reservoir wells, shale and other rocks, as well as refining, processing, trading and transportation of oil and oil products, natural gas and other fluid hydrocarbons, in addition to other energy-related activities. The company operates in six segments: Exploration and Production (E&P), Refining, Transportation and Marketing, Distribution, Gas and Power, Biofuels and International.

Considering Brazil's huge pre-salt oil reserves – estimated at 9.5 to 14 billion barrels of oil equivalent and widely thought to be the most important oil find in recent years – we believe Petrobras is in an enviable position to maintain an impressive production growth profile for years to come.

However, the company has massive debt loads as it carries a net debt of more than $88 billion, with net debt-to-capitalization ratio approximately 51%. As such, leverage remains a key area of concern for the firm.

In addition, Petrobras has lost 2.5% of its value year to date against 5.7% growth of its industry.

Zacks Rank and Stocks to Consider

Petrobras has a Zacks Rank #3 (Hold).

Some better-ranked stocks in the oil and energy sector include ConocoPhillips COP and Holly Energy Partners, L.P. HEP. Both these stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Houston, TX-based ConocoPhillips is a major global exploration and production company. The company’s sales for 2017 are expected to increase 24.4% year over year. The company delivered an average positive earnings surprise of 152.3% in the last four quarters.

Dallas, TX-based Holly Energy is a production pipeline company. The company’s sales for 2017 are expected to increase 10.4% year over year. The company delivered a positive earnings surprise of 57.1% in the third quarter of 2017.

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