Improvements in Operational Efficiency To Drive Petrobras Stock

by Trefis Team
Petroleo Brasileiro Petrobras
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Petrobras ADR (NYSE:PBR)  Since the previous oil drop in 2016 where the price of Brent dropped to ~$26, oil companies have been increasing moving towards making their operations more efficient. Petrobras, in recent times, has seen a fall in volume, as it looks to consolidate operations. While there is little expectation oil prices will see previous lows, major oil companies such as Petrobras have actively taken steps to ensure they do not find themselves in a situation that they faced during 2016. Therefore Petrobras has taken steps to reduce its onshore oil assets, while focusing on its deepwater wells.

With the company looking to consolidate its assets, Petrobras sold various assets for $473 million. This should help it recover its bottom-line in coming quarters. The company paid $853 million dollars in fines last quarter due to breaking anti-corruption laws in the United States.

We have a price estimate of $15 per share for Petrobras, which is in line with its current market price. View our interactive dashboard – How Will Petrobras Perform and modify the key drivers to visualize their impact on its valuation.



With production falling by 9% during recent quarters, this fall weighed on earnings with production from the key Campos Basin making up almost 50% of the fall, and, as a result, production fell to its lowest levels since the year 2000. Regardless, Petrobras expects volumes to recover over the coming quarters as it looks to develop new fields. Furthermore, Petrobras, according to company sources, plans to divest $15 billion of assets, allowing it to free up key working capital and weather volatility in the price of oil better in the coming years.

With improved earnings and cash flow in the previous quarter, Petrobras’ stock rose on the back of better realized price per barrel. This allowed for improved cash flows and reduction in the company’s debt. Investors rewarded the company with the stock rising by a significant amount.

With improved cash flows, and steady oil prices, Petrobras has used the tailwind provided by higher oil prices in the previous quarters to solidify its operations. We therefore expect the stock to continue rising on the back of improved cash flows and earnings per share in the coming quarter.


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