Stressed Out: Petrobras Announces Worst Quarter Ever, Shares Rise Anyway

 | Mar 22, 2016 | 3:45 PM EDT
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This article is part of a Real Money series on 20 companies investors should consider adding to their distressed watch list.

One would expect Petrobras' (PBR.A) admission Monday night that it experienced its worst quarterly loss ever, $10.2 billion, to hurt the stock, but the Brazilian energy company has rallied from its dip earlier in the day to climb more than 2% in afternoon trading on Tuesday.

For the year, the company reported losing $9.6 billion, but  the stock was up over 2.5% on heavy volume Tuesday afternoon.

Petrobras reported its worst quarter ever thanks mainly to write-downs tied to the sharp decline in crude prices during the three months that ended the year. The commodity's price dropped over 45% during the period amid a stubborn supply glut that has been weighing on the industry since 2014.

For the second consecutive year, CEO Almir Bendine said that the state-run company will not pay dividends to either its government or non-government investors, while employees will also forgo their bonuses.

The stock fell more than 5% after-hours on Monday, but has recovered following the company's conference call today. During the call, Petrobras CFO Ivan Monteiro commented that the company would need to reinvent itself.

Petrobras was able to increase its cash position during the quarter by cutting investments. The company nearly doubled its cash positions to 97.8 billion reals from 44.2 billion reals during the period through its cost-cutting measures. The moves will allow the company to generate enough capital to make all of its debt payments through 2017, Bendine said, even if it is unable to complete its planned sale of $14 billion in assets this year.

"Even if we hit a road-bump we have sufficient cash through 2017. This doesn't mean if we have good opportunities to raise cash or lengthen maturities we won't do it," Bendine said.

Despite the improved cash position however, Petrobras' debt load was 40% higher at the end of 2015 than it was a year earlier.

The majority of the write-offs, 83%, the company reported were tied to oil field operations. The largest single non-oilfield write-off of 5.3 billion reals was for the company's unfished Comperj refinery. The company pushed back the start-up of the refinery to 2023, as it has been unable to find a partner to help finance its construction.

The Comperj refinery has been subject to scrutiny as part of the ongoing corruption scandal that the company has been embroiled in.

On Tuesday, Brazilian officials said they carried out searches and detentions across the country as part of the government's investigation into the company. Prosecutors have alleged that businesses paid more than $2 billion in bribes to obtain contracts with the company.

The corruption scandal has reached the country's head of state as President Dilma Rousseff faces impeachment proceedings for her role in the corruption scandal. Rouseff ran the company's board for several years before ascending to the Brazil's presidency. 

Today, Real Money chartist Bruce Kamich warned investors not to trust the rally as Petrobras still has some bottoming to do.

"Shares of Petroleo Brasileiro (PBR) doubled (yes doubled) in recent weeks, but a turnaround and a base pattern that can support a more sustained move higher will probably take more development," Kamich said.

In this first chart of PBR, above, we can see the strong (percentage-wise) rally in February and March. The On-Balance-Volume (OBV) line has moved just fractionally higher. Prices moved above the 50-day moving average, and the slope of that average line turned up. Prices also climbed above the 200-day average line but that move may be temporary as prices of PBR are lower this morning. Notice in the lower panel that the momentum or rate of change of prices has been slowing lately," Kamich added.

That slowdown indicates rough seas ahead for the oil company. We will continue to monitor its progress. 

For more on Real Money's 20 distressed companies to watch:

'Fill or Kill' is a trading term that defines that moment -- that crucial moment -- when you either have to get the order done or walk away. That's what this column is about; it's that exact moment when you must buy, sell or fold on a stock. --Jim Cramer, founder and editorial director of TheStreet

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