Petrobras To Post A Strong Quarter Backed By Higher Realizations And Cost Savings

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PBR: Petroleo Brasileiro logo
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Petroleo Brasileiro

Petroleo Brasileiro Petrobras (NYSE:PBR), the Brazilian integrated energy company, is slated to report its financial results for the September quarter on 10th November 2016 [1]. The market expects the company to post a strong improvement in its earnings driven by the recovery in commodity prices and cost reduction initiatives in the last quarter. On the back of improving investor perception about the company, the company’s stock has jumped almost 60% in the last four months.

PBR-Q&A-3Q16

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Source: Google Finance

In terms of the top line, Petrobras is likely to record a significant increase in its revenue for the quarter, largely due to higher price realizations driven by the 35% recovery in natural gas prices. On the cost side, the oil and gas giant continued to consistently take measures to control its costs in the quarter. In September, the company revised its operating cost guidance for 2017-2021 to $126 billion, as opposed to its previous guidance of $153 billion. This notable decline in the company’s cost structure will ensure a sizeable improvement in its operating income and margin over the coming quarters.

Petrobras’ Operating Cost Reduction Target Under Its Business And Management Plan (BMP) 

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Source: Petrobras’ BMP 2017-2021 Presentation 

In addition, in order to preserve its depleting cash flows and rising debt levels, Petrobras has further revised its total capital spending budget for the remaining years of this decade to $74.1 billion from its prior guidance of $98.4 billion. This downward revision of 25% will help in conserving the company’s tight cash flow position and weather the commodity downturn more efficiently.

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Notes:
  1. Petrobras To Announce Third Quarter 2016 Results, www.petrobras.com []