Petrobras’ Dividend Disaster Is Overblown (NYSE:PBR)

Petrobras (NYSE:PBR) has declined virtually 20% over the previous month as buyers stay involved about what had been as soon as report breaking dividends for the corporate. Brazil’s president has summoned the company’s CEO over considerations about this disaster. That is regardless of the disaster being triggered by a authorities that wanted the company to instead invest dividends.

Petrobras Monetary Outcomes

The corporate had the second strongest monetary ends in its historical past, with greater than $50 billion in adjusted EBITDA.

The corporate generated greater than $30 billion in FCF, a large quantity for an organization with a market capitalization of just below $100 billion. The corporate’s gross debt of just below $63 billion is hefty versus the corporate’s market cap, however very inexpensive versus its money stream era. The corporate’s monetary outcomes remained extremely sturdy.

Petrobras Belongings

The corporate has some of essentially the most thrilling belongings within the trade.

The corporate has managed to say no its onshore shallow water manufacturing. Nevertheless, pre-salt and deepwater manufacturing prices truly went up. Nonetheless the corporate benefited from pre-salt being the next share of general manufacturing, which resulted in complete manufacturing prices dropping by the mid-single digits.

Total, from 2022-2023, the corporate noticed complete price of produced oil declining by 14%. The corporate’s internet price was $35 / barrel, lower than half of prevailing oil costs. That has enabled the corporate to drive substantial shareholder returns.

The corporate hit a serious milestone with its FPSO deployment technique. The corporate managed so as to add 5 FPSOs in a single yr, including the capability to provide a large 630 thousand barrels / day. That represents a triple digit variety of wells drilled, and it highlights the corporate’s modular technique to extend manufacturing.

Because of this, the corporate elevated complete manufacturing attributable by virtually 4%, whereas operated manufacturing went up greater than 6%.

The corporate additionally operates a large downstream enterprise, the place it gives sturdy product gross sales in Brazil. The corporate’s oil product gross sales right here remained roughly fixed. Thrilling for us is a 5% development in exports. Exports characterize the corporate’s methods to maximise earnings from decrease oil costs, and it does not have the identical native political points as elevating costs within the nation.

Petrobras Shareholder Return Coverage

The corporate has a large quantity of shareholder returns in 2023, though authorities interference means native returns will likely be decrease.

The corporate generated a large greater than $30 billion in FCF, the corporate’s third highest in historical past. It invested greater than $10 billion in investments, supporting its large portfolio, and a greater than ample funding price in our view. The corporate additionally managed to drive large double-digit shareholder returns with greater than $20 billion in dividends.

The corporate’s dedication to each dividends and share buybacks present its portfolio’s energy. We might wish to see the corporate make the most of extra share buybacks as an alternative of dividends.

Authorities Interference

Petrobras has had a constant downside with authorities interference. The supply of the latest scandal is a proposal to pay investors another extraordinary dividend, earlier than authorities appointed board members as an alternative determined to withhold the cash. That result in a robust decline the corporate’s share worth.

That is due to a possible resolution to revise the foundations across the reserves to as an alternative encourage the cash for use for reinvestment, vitality sector reinvestment which may not have good returns. It is value noting that Brazil’s present President (Lula) was the identical President who pushed a Petrobras spending spree a decade in the past that left the corporate deeply indebted.

So long as Petrobras continues to face interference, this might put sturdy stress on the corporate. It is a substantial threat that can not be ignored. We might wish to see Petrobras enhance exports to earn extra money that may be directed to shareholder returns.

Conclusion

Petrobras has a singular portfolio of belongings, however it’s in an much more distinctive scenario. The corporate has had an extremely sturdy previous couple of years, rising each dividends and drastically enhancing its monetary image. The corporate, nonetheless, is dealing with new governmental stress, impacted by the federal government’s >50% possession.

There may be new stress to retain dividends and as an alternative use it for investments, investments which may not drive the identical returns. The corporate must promote oil outdoors of the nation, because it grows, with further exports at the next worth. That, mixed with a much less restricted authorities, may also help assist sturdy general returns, making the corporate a invaluable funding.