Petrobras, Brazil’s national oil company, may soon have to pay the piper for using hedge accounting to limit the impact of exchange rate variations on its dollar-denominated debt, according to a Wall Street analyst.

Starting in May 2013, Petrobras set aside about 20% of export proceeds in a special account for seven years, allowing it to protect about 70% of its net debt from exchange-rate variations. The Brazilian real’s recent decline against the dollar had caused the local-currency value of the company’s foreign-currency liabilities and debt payments to rise sharply.

Petrobras had increased borrowing to finance a $237 billion, five-year investment plan, the world’s largest corporate spending program.

In a research note, analyst Alexander Burgansky of Deutsche Bank said Petrobras is currently hedging $58 billion of its designated “highly probable” future dollar-denominated exports and has unrecognized after-tax foreign-exchange losses of $21 million.

“We believe recent events may require Petrobras to reassess the size of the hedge as some its future exports may have become less probable in light of a change to production growth outlook and lower oil prices,” he said. “In this case Petrobras may be required to discontinue — at least partially — the use of hedge accounting, which may result in an immediate recognition of a portion of its $21 billion unrealized forex loss in its income statement.”

An accounting loss would reduce the likelihood of a preferred stock dividend being declared, according to the analyst.

If, on the other hand, Petrobras were to continue using hedge accounting, Burgansky said, “it will have to start reclassifying the gigantic [forex loss] into its income statement starting from 2016, significantly depressing its accounting earnings for the next nine years (until 2025).”

Burgansky asked, “Can this outcome be considered consistent with the original purpose of hedge accounting? If so, the company’s earnings will be depressed for years to come, delaying the first ordinary dividend until 2018, we estimate.”

Petrobras said hedge accounting would allow its financial results “to be better aligned with its economic and operating reality.”

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