Petrobras Brews Corruption And Huge Debts

Brazil’s state oil company Petróleo Brasileiro SA (PBR), commonly referred to as Petrobras, was once the darling of emerging market investors. But, no more.

For the past year, the company has been embroiled by the biggest political bribery scandal in Brazil’s history.

Dubbed the “car wash” by the police, Brazilian prosecutors allege that politicians colluded with former company officials and contractors to extract billions of dollars in bribes. More than 750 individual projects are under investigation.

The scandal caused Petrobras to write off about $2 billion in its latest (and much-delayed) financial results.

If that isn’t bad enough, the tumble in oil prices and project delays have started to hit home.

The company wrote off an additional $15 billion as an impairment charge due to the value of its oil assets tumbling.

That brings the total write-offs to nearly $17 billion!

The Mighty Have Fallen: Petrobras' Share Price Over the Past Two Years

Unfortunately for the company and its investors, the scandal is only the tip of the iceberg for Petrobras.

World’s Most-Indebted Major Oil Company

Petrobras’ real problem is too much debt.

In fact, it’s the world’s most-indebted major oil company. Petrobras carries a net debt load of $106.2 billion as of the end of 2014.

According to The Wall Street Journal, that’s nearly 4.8 times the company’s earnings before interest, taxes, depreciation, and amortization. The Wall Street Journal went so far as to call the company “an oil major with the leverage of a Texas wildcatter.”

Now, Petrobras faces the very stiff task of somehow servicing this debt at a time when oil prices are down about 50% from the levels they were a year ago.

In an effort to carry its debt burden, Petrobras has tried to eliminate the dividend. It will also slash its capital expenditures next year to $25 billion, down 37% from its original forecast of $39.5 billion.

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Author: Travis Esquivel

Travis Esquivel is an engineer, passionate soccer player and full-time dad. He enjoys writing about innovation and technology from time to time.

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