Offshore Brazil – Petrobras pre-salt areas, April 2015 (illustration: Petrobras)

“Our strong operational result was consumed by a decline in the exchange rate,” Petrobras Chief Financial Officer Ivan Monteiro told reporters in Rio de Janeiro. Petrobras posted a loss of USD 1.01 billion in the third quarter due lower oil prices, a weaker Brazilian currency against the dollar and the country’s worst recession in decades.

Loss on exchange rate helps crimped revenue and total debt to rise 44% to 506.6 billion Brazilian Real (BRL) since the end of 2014, largely due to dollar debts. In dollars, its debt shrank 4% to USD 127.5 billion, still among the biggest of any industrial company on the planet.

It was the third loss in five quarters for Petrobras and widely missed market expectations for a loss of about BRL 800 million. A year earlier, Petrobras recorded a BRL 5.34 billion loss.

Monteiro and the company’s CEO, Aldemir Bendine, who joined earlier this year from Banco do Brasil SA’s presidency, are struggling to cut costs and sell assets as they seek to maintain key investments in giant offshore oilfields and cut the company’s debt.

The company hopes to end 2015 with USD 22 billion in cash and has about USD 25 billion of credit offers from lenders to try and cover its spending needs, Monteiro said.

Other complications are lower demand for fuel in a weak Brazilian economy. Net sales, or total sales minus sales taxes, fell 6.9% to BRL 82.2 billion compared with 88.4 billion a year earlier. The price of Benchmark Brent crude was 50% lower in the third quarter than a year earlier.

Earnings before interest, taxes, depreciation and amortization, a key measure of cash generation known as EBITDA, rose 82% to BRL 15.5 billion from 8.49 billion.

But output was flat. Production in the quarter rose 1.9% to 2.80 million barrels a day of oil and equivalent natural gas in Brazil and abroad from 2.77 million barrels a day a year earlier. Production was 1.2% higher than in the second quarter.

Financial costs, though, wiped out operating gains. The operating profit rose to BRL 5.81 billion, reversing a year-ago loss, when the company had one-time write-downs resulting from the corruption scandal.

Next up: USD 24 billion of repayments over 24 months.

That’s a towering hurdle for a company that hasn’t generated free cash flow for eight years and whose borrowing rates are soaring. Annual debt servicing costs have doubled to USD 5.4 billion in the past three years.

It is interesting that despite all these problems Petrobras continues breaking production records in the pre-salt: At present 1 million boe/d, representing around one third of the country’s total output.

Petrobras has set an ambitious goal to produce 6.4 million barrels daily of oil equivalent (BDOE) by 2020 in Brazil and internationally (mainly offshore in the Gulf of Mexico and West Africa). This would be 132% more than in 2010. Brazil would produce 4.9 million BDOE, including 2 million BDOE from the Santos Basin.

The investment bank Credit Suisse forecasts for 2020 production at 4.6 million BDOE. A prominent Brazilian geologist asked Scandoil, under conditions of anonymity: “How many wells has Credit Suisse drilled?”

Petrobras sources told Scandinavian Oil-Gas Magazine that it is trying to reduce its huge debt by selling part of its 40% stake in the pre-salt Libra field.

Petrobras could raise USD 1.5 billion for up to a 10% share in the project.

The company, which is targeting USD 15.1 billion in divestment by the end of next year, is now offering the sought-after oil prospects in the pre-salt areas in the Santos basin after struggling to sell assets in less attractive prospects off Brazil and in the Gulf of Mexico.

 The sale will certainly attract international oil companies keen to expand in the area, say analysts.

Under Brazil’s first offshore oil lease sold under production sharing agreements, the company is required to be the operator of the Libra development and hold a minimum 30% stake.

Anglo-Dutch Shell and France’s Total each hold a 20% stake in Libra, together with China National Petroleum Corporation (10%) and China National Offshore Oil Corporation (10%).

First oil from the Libra field, which is estimated to hold between 8 billion and 12 billion recoverable barrels of oil and gas equivalent, is expected to flow in the first quarter of 2017.

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Peter Howard Wertheim and Dayse Abrantes – based in Rio de Janeiro, Brazil and cover Latin America – can be reached at peterhw@frionline.com.br