Current PBR Stock Info

Estimates: Anywhere from 13% to 25% of Oil Production Loss

The slew of problems with Brazil’s Petrobras (ticker: PBR) have been well-documented over the past several months. A widespread corruption scandal has outed high-ranking PBR executives and even government officials, leading to free-falling approval ratings for President (and former Petrobras Chairman) Dilma Rousseff. The company’s debt has ballooned past $120 billion, making it the most indebted oil major in history.

To pay off its debt, Petrobras is seeking buyers for its properties in hopes of generating up to $15 billion by year-end 2016, and as much as $58 billion overall by 2019. The intended moves are not sitting well with the Brazil Oil Workers Federation, who have commenced its second strike since June. The Federation believes the sales will lead to thousands of layoffs and negatively affect Brazil’s floundering economy, whose real GDP growth is on track for a year-over-year decline of 3.0%.

Production Set to Decline

The strike comes shortly after Petrobras announced monthly production records of 2.88 MMBOEPD in August 2015, and its offshore pre-salt operations surpassed the 1.0 MMBOEPD milestone in September.

Those numbers are about to drop, however, as PBR said the strike cut into its oil production levels by about 13%, or roughly 273 MBOPD. The Federation had a much larger estimate, saying as much as 25%, or roughly 500 MBOPD, have been cut off for the time being. Analysts interviewed by Reuters say the shortfalls could lead up to a daily revenue loss of at least $25 million. The Federation largely represents the offshore oil workers, meaning pre-salt production will decrease dramatically. A total of 25 offshore platforms have been shut down.

Brazil’s oil agency said there is no risk of an oil shortage at the moment and its fuel distribution network is not expected to be affected.

A union representative says the hope is to revive a similar strike that occurred in 1997. The Federation believes that strike avoided a privatization of Petrobras, but the walk-out was ended once PBR threatened the workers with mass lay-offs. This situation is different, says a note from Bank of America, who points out the previous circumstance revolved around wage increases. Slimming down the size of Petrobras will inevitably lead to a smaller workforce, and current PBR workers are more interested in job security than wage increases in this environment.

Although Petrobras is one of the largest publicly traded companies on the New York Stock Exchange, the workers union is more focused on domestic issues rather than those abroad. “The company should not be used to guarantee the profits of investors,” FUP said in a statement in July. “It should be a spring to drive social and economic development in Brazil.”

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