Petrobras Earnings: Strong Performance Continues, but Possibility of Dividend Policy Change

Petrobras PBR reported first-quarter adjusted reoccurring EBITDA fell to BRL 74.5 billion from BRL 78.2 billion a year before largely on lower oil prices, beating market expectations.

The board approved a dividend of BRL 1.89 ($0.77 per ADR at current exchange rates), in line with its policy to return 60% of free cash and an extraordinary dividend. Petrobras also announced the board will consider improvements to the current shareholder remuneration policy, including repurchasing shares. We await the board’s proposals due midyear. We still see risk that overall remuneration to shareholders will be reduced in favor of greater investment, including in refining and renewables. Our fair value estimate and moat rating are unchanged.

EBITDA fell to BRL 56.6 billion from BRL 73.0 billion a year ago on lower oil prices. Total production volumes fell to 2,676 mboe/d from 2,796 mboe/d a year earlier but remain on track to grow during the next five years.

The refining and marketing segment adjusted EBTIDA decreased to BRL 12.4 billion from BRL 15.8 billion the year before. We also see risk to these earnings given potential intervention to roll back price reforms. Although lower oil prices reduce that probability in the near term. The gas and power segment’s results improved to adjusted EBTIDA of BRL 3.8 billion compared with a loss of BRL 1.6 billion last year on an improvement in margins and lower expenses.

Free cash flow increased to BRL 41.2 billion during the quarter from BRL 40.5 billion last year on higher operating cash flow, excluding proceeds from divestments and compensation of co-participation agreements. Gross debt fell to $53.3 billion, below management’s debt target level of $60 billion.