March 9, 2020 / 10:48 PM / 22 days ago

UPDATE 2-Brazil's Petrobras shares slump as oil rout casts doubt on strategy

(Adds analyst comment, background, updates market prices)

By Marta Nogueira

RIO DE JANEIRO, March 9 (Reuters) - Shares in Brazil’s state-controlled Petroleo Brasileiro SA plunged by nearly a third on Monday following a severe slump in international oil prices that could squeeze earnings and throw up barriers to planned asset sales.

The global rout, triggered by decisions by Saudi Arabia and Russia to hike output despite declining demand as the new coronavirus spreads, has hit oil producers worldwide.

For Petrobras, which saw some 94.3 billion reais ($19.8 billion) in market value evaporate, the price plunge could cause complications for Chief Executive Roberto Castello Branco’s plan to sell $20 billion to $30 billion of assets by 2024.

The company plans to cut its diesel and gasoline selling prices to distributors in response to the rout, a source with knowledge of the matter said, without specifying by how much.

Petrobras said in a statement that it would maintain its strategic plan for now, but that it was monitoring the oil market.

It did not comment on the possibility of price cuts.

“Obviously, (the market rout) isn’t good for Petrobras given that it has this policy of aggressive asset sales and many of the candidates to buy them may want to put off making decisions,” said Helder Queiroz, a professor at the Federal University of Rio de Janeiro and former director at Brazil’s National Petroleum Agency (ANP).

In particular, he cited the company’s plan to sell eight refineries spread around Brazil.

At the same time, analysts noted that Petrobras has made strides in cutting its still hefty $79 billion debt load.

“It still has a very high debt level,” said Adriano Pires, director of the Brazilian Infrastructure Center. “That’s why it has to continue cutting costs, invest in what provides good returns, exercise capital discipline, keep prices aligned with international levels, and divest assets.”

“It is a company which is far from being healthy but it’s on the right path.”

The company has been seeking to sharpen its focus on Brazil’s deepwater “pre-salt” area, a geological formation where billions of barrels of oil are trapped underneath a layer of salt beneath the ocean floor.

Brazil’s President Jair Bolsonaro wrote on Twitter that the government would not interfere with Petrobras’ pricing policy, but that the trend will be for lower prices at refineries.

Petrobras preferred shares fell 30 percent, the biggest single contributor to a 12.2% tumble in the Bovespa benchmark stock index in Sao Paulo. ($1 = 4.7430 reais) (Additional reporting by Rogrigo Viga Gaier, Carolina Mandl and Anthony Boadle, Editing by Rosalba O’Brien)

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