Credit analysis of Petrobras (petroleum industry company)

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This assignment requires a detailed credit analysis of the Brazilian oil company Petrobras. The assignment is broken down into 8 different parts. These parts should be done in this sequential order, purpose, company overview, offerings and covenants, industry analysis, management team, financial condition, financial projections, and conclusion. Charts and graphs should be used as an appendix section to help show where the information is coming from. The total length of the paper will be around 5 pages single spaced.

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Running head: PETROBRAS CREDIT ANALYSIS

PETROBRAS CREDIT ANALYSIS
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PETROBRAS CREDIT ANALYSIS

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PETROBRAS CREDIT ANALYSIS
Purpose
The purpose of this statement is to conduct a credit analysis on Petrobras so as to assess its
creditworthiness. Credit worthiness is the ability of a company to meet its financial obligations as
and when they fall due. Petrobras is a multinational corporation in the petroleum industry founded
in Brazil. It is the largest company in terms of market share in the southern hemisphere and the
company earns the largest returns in the entire South American region.
An analysis of its past and current financial performance and position coupled with its
financial projections will help determine its ability to meet its financial obligations. Its past trends
in debt offerings and its commitment to honor the covenants of those offerings will significantly
impact on its credit worthiness. An analysis of key financial aspects of the company in terms of
percentage increase or decrease in its past years and a highlight of how the aspects have impacted
on its ability to pay its debts will also largely impact on its credit worthiness. How Petrobras has
been offering debts and the repayment patterns play a vital role in the credit analysis and
subsequently, its credit worthiness will be determined (LUCCHESI, CELSO FERNANDO, Petrobras,
2014).
Company Overview
Petrobras is a state-owned corporation that was incorporated on October 3, 1953. The
company deals with natural gas, oil, and the energy industry. It is concerned with prospecting,
drilling, refining, processing, trading and transporting unrefined oil. It also deals with other oil
related products such as liquid hydrocarbons and natural gas. The Company function through a
five sectioned strategy. The strategy constitutes of exploration and production; gas and power,
biofuels, refining of crude oil, marketing and transportation of both the crude and refined oil
products; Distribution, and Corporate structuring of operational strategies. The Company conducts
various activities related to energy processing. Some of the activities include production,
development and research, transportation of finished products and crude oil, distribution chains
and commercialization of the various energy dimensions and other concerns related to energy
production activities.
The organization also provides a variety of Domestic and commercial automotive,
maritime, and industrial energy products. The products for automation constitute diesel, ethanol,
gasoline, and gas for vehicles. Commodities for domestic use include natural gas designed for
home use, turpentine and the famous liquefied petroleum gas. Commodities for industrial
applications constitute natural gas for industries, a unique category of diesel called S-500, paraffin,
sulphur, base oil, grease and other industrial lubricants. Nitrogenous goods are composed of
reforce N, urea for the manufacture of fertilizer, urea of premium nature, Ammonium Sulphate for
the manufacture of fertilizer. Its rails commodities comprise of railroad diesel fuel and rail
lubricant. They produce maritime commodities such as verana diesel, maritime diesel fuel, bunker
and vessel lubricants. Aviation goods include kerosene for aviation and fuel for jets .
Offerings and Covenants
Petrobras has debt offerings amounting to $69 billion, a cut from $85 billion of 2017. it is
the lowest offering since the year 2012. The decline was occasioned by the selling of Petrobas’
assets which resulted in a decline in leverage for debt. The company reported that they re-financed
and made new offering totaling $1.45 billion under new debt offerings and covenants. The

PETROBRAS CREDIT ANALYSIS

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creditors that were involved in the offerings include the Bank of China, the HSBC Bank and the
new Development Bank established by the BRICs countries which include Brazil, Russia, India
and China.
The company intends to raise $21 billion from selling its assets before the year ends. This
is a strategic plan to lower its debt offerings as they carry out operations. They raised only $4.5
billion which composes of half of the 2018 plan resulting from sale of assets in the year 2017. The
company partnered with the Norway Statoil to sell part of the Roncador Field of the Campos Basin
which yielded $2.9. The proceeds from the partnership was considered to be the most significant
accomplishment by Petrobras in 2017. The partnership was also a strategic divestment plan to
reduce its gigantic debt offerings which amounted was amounting to $84.9 billion – and obtain
necessary resources in its water and presalt investment projects aimed at diversification.
But the financial situation of Petrobras still scares investors and potential debt offerings
and covenants. In march 2018, the company reported a net loss of $131.18 million and although
the loss had remarkably reduced compared to the previous years, the outcome was not pleasing.
The company has made accumulated losses of $23 billion over the past four years but the
stakeholders of debt offerings have made huge profits out of the financial crisis that befell the
company. The covenants of the debt offerings resulted in a total payout of $23 billion by Petrobras
as interest for the debt offerings.
Petrobras remains the leading oil company in the world with the highest amount of debt
offerings. The company incurs approximately $5 billion more cost of debt on its debt offerings
compared to other oil companies in the world per year. The company’s management explained
that they have faced challenges which have an effect of delaying its debt objectives towards
deleveraging.
Industry analysis
Petrobras is one of the corporations in brazil belonging to the petroleum industry. The
petroleum industry is dominated by key players that influence the demand and supply of petroleum
products. The macro environment and political aspects have influence in shaping the petroleum
industrial dynamics. Countries that own oil and gas resources impact the industry significantly.
The control of resources gives countries an opportunity to demand sell concessions to othe...


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