Petrobras Posts Its Best Performance Since 2011 Backed By Higher Price Realizations & Lower Finance Expense

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PBR: Petroleo Brasileiro logo
PBR
Petroleo Brasileiro

Petroleo Brasileiro Petrobras (NYSE:PBR), the Brazilian integrated energy company, posted a strong improvement in its June quarter financial results driven by higher price realizations, marking its best performance since 2011. The company’s earnings rose significantly, driven by solid revenue growth and depreciation of Reais during the quarter. The key highlight of the earnings was the reduction in the company’s gross debt, and in turn, in its financial expense, which further bolstered its bottom-line. Given the success of its debt reduction initiatives, Petrobras expects to achieve its targeted net debt to adjusted EBITDA ratio of 2.5x by the end of 2018.

We have a price estimate of $15 per share for the company, which is higher than its current market price. View our interactive dashboard – Petrobras’ Outlook For 2018 and modify the key drivers to visualize their impact on its valuation.

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Key Highlights of 2Q’18 Results

  • Petrobras’ upstream earnings rose sharply to $11.6 billion, significantly higher than $4.9 billion in the same quarter of last year. This strong improvement was backed by higher price realization, partially offset by lower production due to divestments in Lapa and Roncador fields.
  • The company’s downstream operations witnessed a decline in volumes compared to the first half of 2017, which dampened its top-line growth. Yet, the downstream earnings increased more than 50% to $5.3 billion for the quarter.
  • The company’s overall revenue for the quarter rose to $84.4 billion, almost 26% higher than the same quarter of last year. Higher revenue, coupled with the depreciation of Reais, caused Petrobras’ net income to rise notably to $10.1 billion as opposed to $314 million in the year ago quarter. This marked the company’s best quarter since 2011.
  • Further, Petrobras managed to reduce its gross debt to $92 billion and net debt to $74 billion at the end of the first half of 2018. The lower indebtedness caused a reduction in the company’s financial expenses, which augmented its bottom-line growth.

Going Forward

  • On the operational front, the quarter witnessed start-up of the first production system in the Transfer of Rights area, in Buzios field, with FPSOs P74, and a new production system in the Campos Basin, in Tartaruga Verde field. Further, the company expanded its exploratory portfolio by acquiring new areas in ANP bidding rounds, particularly in the Campos and Santos Basins. We expect these developments to drive its value in the long term.
  • Given the success and constant monitoring of its Business and Management Plan, Petrobras expects to achieve its targeted net debt to adjusted EBITDA ratio of 2.5x by the end of 2018.
  • Further, the company expects to make investments of $15 billion in 2018, keeping the total investment to $74.5 billion for the time period 2018-2022.
  • Additionally, the company expects to receive cash of $7 billion through its partnerships and divestments during the year.

Do not agree with our forecast? Create your own price forecast for Petrobras by changing the base inputs (blue dots) on our interactive dashboard.

 

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