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Fitch rates Petrobras' $8.5bn proposed notes BBB

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Staff writer ▼ | March 12, 2014
Fitch Ratings has assigned a BBB rating to Petroleo Brasileiro S.A.'s (Petrobras) proposed senior unsecured notes issuance for $8.5 billion.
PetrobrasFitch Ratings has assigned a BBB rating to Petroleo Brasileiro S.A.'s (Petrobras) proposed senior unsecured notes issuance for $8.5 billion.

The notes, which will have tenures between three and 30 years, will be issued through its wholly owned subsidiary, Petrobras Global Finance B.V. (PGF), and will be unconditionally and irrevocably guaranteed by Petrobras.

Petrobras' ratings are supported by its leadership position in the Brazilian domestic energy market, its recognized expertise in offshore exploration and production (E&P), and its strategic importance to Brazil (Fitch long-term Issuer Default Rating [IDR] of BBB with a Stable Outlook).

Petrobras' ratings are tempered by its aggressive capex program; exposure to local political interference; and vulnerability to fluctuations in international commodity prices, currency risk and domestic market revenue concentration. Petrobras' credit metrics are expected to deteriorate over the next two to three years as a result of this aggressive capex program in combination with its current trade deficit.

Petrobras has significant growth potential in both production and reserves, backed by an ambitious capital investment program of $220 billion between 2014 and 2018, and recent offshore discoveries.

The company has recently affirmed its stated production targets of 3.9 billion barrels of oil equivalent per day (boepd) in 2018 and 5.2 million boepd in 2020. Fitch expects the company to face various challenges to achieve these targets on time, such as securing critical equipment, complying with local content commitments and obtaining significant external financing.

During 2013, Petrobras' production was relatively unchanged from 2012 at an average of 2,539 thousand (m) boepd, and was consistent with Fitch's expectations. Petrobras expects production to increase by 7.5% during 2014 as a result of the new production platforms that recently began operations.

The company enjoys a solid asset base reflected in proved oil and gas reserves of 13 billion barrels of oil equivalent (boe) under the U.S. Securities and Exchange Commission definition. In 2013, its three-year reserve replacement ratio (RRR) was 135% and its reserve life was 16 years.