Petroleo Brasileiro SA Petrobras (ADR) (PBR) Stock: Brazilian Government May Allow Other Companies To Operate In Subsalt Economy

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The Country Caller takes a look why the Brazilian government may allow other companies to operate in the Subsalt Region

The government’s regulation, making it mandatory for Petroleo Brasileiro SA Petrobras (ADR) (NYSE:PBR) to undertake a 30% financial stake in all subsea salt projects, came to an end in July. Now as reported by Reuters, that other oil and gas companies may also be taking a share in these deepwater regions.

As reported by Reuters, Jose Botelho, Head of Exploration and Production Policy at the energy ministry indicated: “Brazil may allow companies besides Petrobras to bid for the right to produce extra oil from areas it sold to the state-led oil company in 2010, the head of the exploration and production policy at the energy ministry.” He also added that the Brazil may allow the Rio de Janeiro based company “To pay with oil for adjustments in the price of the maximum 5 billion barrels of oil and equivalent natural gas it is allowed to produce in the areas.”

Petrobras, two years from now, was considered the backbone of the Brazilian economy. The company’s market capitalization exceeded $250 billion and had ambitious plans to becoming the next Exxon. 

The scandal has derailed the company’s prestige and reputation. The Brazilian federal police are refusing to take a step back and have arrested over 100 individuals in direct relation to the scandal. In addition to the scandal, the Brazilian state-run company isn’t that well off financially.

Petrobras has a debt load of over $126 billion, which is the highest for any energy company in the world. While leverage tends to help companies when the overall environment is good, it tends to haunt them when the industry is going in a downturn. The same is the case with Petrobras as a combination of low crude prices and high debt don’t fair out well. Thus, the initiative taken by the government is a step to relieve Petrobras of some its obligations and give it a breathing space in the current downturn.

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