Petrobras Earnings: New Remuneration Policy Not As Generous, but Still Favorable

Petrobras PBR reported second-quarter adjusted recurring EBITDA fell to BRL 58.2 billion from BRL 99.3 billion a year before largely on lower oil prices. However, the main story was the new remuneration policy.

The board approved a dividend of BRL 1.89 ($0.77 per ADR at current exchange rates), in line with its new policy to return 45% of free cash flow, down from the previous 60%. While this is a reduction the lower level is in line, if not greater, than integrated oil peers. Petrobras also announced the board approved a new share buyback program where shares issued by Petrobras will remain as treasury stock, without reducing the share capital. In the plan, Petrobras would acquire 3.5% of total outstanding preferred shares, up to 157.8 million shares.

All in all, this marks a shift from a high shareholder distribution during 2022 in favor of larger future investments. We believe this is a risk if the investments are in refining or renewables. However, while the official new business has yet to be released, indications are that renewables spending will be less than 15%, which is reasonable in our view. However, as always, returns on investment are what matter. Our $ 12.60 fair value estimate and no moat rating for Petrobras are unchanged.

Exploration and production’s adjusted EBITDA fell to BRL 49.0 billion from BRL 78.5 billion a year ago on lower oil prices. Total production volumes fell to 2.63 million barrels of oil equivalent per day from 2.65 mmboe/d, but presalt production reached a quarterly high of 2.06 mmboe/d, equivalent to 78% of Petrobras’ total production.

The refining and marketing segment’s adjusted EBTIDA decreased to BRL 7.9 billion from BRL 23.4 billion the year before largely due to a 40% drop in international diesel crack spreads. We still see risk to these earnings given potential intervention to roll back price reforms, although lower oil prices reduce that probability in the near term.