Changed Consumer Behavior Due To Pandemic Likely Permanent, Warns Brazil’s Petrobras

Brazil’s oil producing giant Petrobras has warned of the likelihood of the changes in consumer demand and behavior because of the novel coronavirus pandemic to be permanent, even as the company took a 65.3 billion real ($11.2 billion) impairment on its exploration and production assets on Thursday.

The company, which is formally known as Petroleo Brasileiro SA, reported a first-quarter net loss of 48.5 billion reais because of the impairment. The entire value of its shallow-water assets was written off by the company. It also confirmed that it did not expect to resume production at six high-cost production assets that it has currently put up for sale.

The total value of the impairments came to 57.6 billion reais for its deepwater assets, including the massive Marlim Sul oil field, and 6.6 billion reais at its shallow-water fields. Other unspecified assets comprised the remaining 1.1 billion reais of writedowns.

Analysts view the impairment as a warning by the state-run oil giant about the likelihood that the global oil demand could never return back to the levels reached before the coronavirus pandemic even though there are many countries and economies that are currently trying to slowly restart economic activities and relaxing some of the strict lockdown measures that had been in place for weeks.

In its first-quarter results statement, the company that currently it expects the long-term Brent prices to be at about $50 per barrel, compared to its previous assumption of $65. According to the projections of the company, the Brent prices would average $25 a barrel for 2020 and would increase by $5 on an average every year until reaching an average of $50 in 2025.

All of the exploration and production projects are also currently being reviewed by the company to ensure that each of them makes economic sense considering the new pricing predictions and expectations of the company for global crude oil prices.

“The company expects a lower level of demand in the long term, taking into account … structural change in the world economy, with permanent effects arising from this economic shock, including changes observed in consumer habits,” Petrobras said.

Petrobras reported recurring earnings, before interest, taxes, depreciation and amortization, or EBITDA, adjusted for some one-off factors, of 36.9 billion reais. That figure was significantly above the Refinitiv consensus estimate of 32.9 billion reais.

The economic fallout of the coronavirus pandemic has had no significant impact on its first-quarter results, the company said. It however said that the actual impact of the pandemic will be felt in a meaningful manner in the coming quarters. The company said that it had benefited from continued strong exports of crude and bunker fuel, a product used by ships.

During the quarter, the company’s debt increased “only $2.1 billion” even though the market conditions were very unfavorable, said Petrobras Chief Executive Roberto Castello Branco in comments accompanying the results.

The company was still following its ambitious divestment program, he added, but also warned of possible delays.

(Adapted from GlobeAndMail.com)

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