Has Petroleo Brasileiro Petrobras SA (ADR) (PBR) Become the Perfect Stock?

Petrobras in particular suffers from the fact that many of its most promising resources are in hard-to-reach areas offshore. As a result, it needs very high oil prices to justify the costs involved, and with massive debt approaching the $100 billion mark, the company has to be aware of financing costs that have sapped its bottom-line strength lately.

As a result, Petrobras has taken some drastic measures. Earlier this month, it announced that it would cut its dividend by more than half. The move will preserve cash to continue its ambitious investment plans, but it also shows the vulnerability of the company to current market conditions.

Problems at Petrobras could have a ripple effect across the industry. General Electric Company (NYSE:GE) has counted on its budding relationship with the oil giant to advance its own oil business, and deepwater drilling companies Seadrill Ltd (NYSE:SDRL) and Transocean LTD (NYSE:RIG) have both provided rigs for Petrobras projects. All of those companies are in danger of taking a hit if Petrobras can’t recover quickly.

For Petrobras to improve, it needs to do a better job developing its huge wealth of offshore resources. Combined with efforts to bring the Brazilian economy back to strength, Petrobras has plenty of potential to get back toward perfection in the years ahead.

The article Has Petrobras Become the Perfect Stock? originally appeared on Fool.com and is written by Dan Caplinger.

Fool contributor Dan Caplinger has no position in any stocks mentioned. The Motley Fool recommends Petrobras and Seadrill and owns shares of General Electric, Seadrill, and Transocean.

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