Moody’s Investor Services has downgraded the credit rating of Brazil’s state-run oil company Petrobras from neutral to negative, as the company wrestles with rising debt and lower profits.
Moody’s said its decision was driven by missed production targets, as well uncertainty over the timing and delivery of future production.
The Brazilian oil giant is one of the leading deep-water explorers, with a portfolio of operations in offshore Brazil. Petrobras recently increased its capital budget by 5 percent to $236.5 billion for 2012-2016 to further its exploration activities.
It is funding the capital spending boost mostly with debt, which has resulted in cash flow issues and an increased ratio of debt to proved reserves, Moody’s said.
“Financial leverage, in turn, has increased and could further deteriorate in 2013 and beyond,” Moody’s wrote in its Monday announcement.
Moody’s also has voiced concern about the growing role of the Brazilian government in the management of Petrobras.
“We also see increasing linkage between Petrobras and the sovereign, with the government playing a larger role in the offshore development, the company’s strategic direction, and policies such as local content requirements that will affect its future development plans,” Moody’s said in a written statement announcing the outlook change.