EUR 850.00 For Business Accounts Only

Morningstar | Petrobras Continues to Perform Well While Ongoing Asset Sales Reshape It

Our fair value estimate and moat rating are unchanged after Petrobras reported an increase in first-quarter adjusted EBITDA to BRL 27.5 billion from BRL 25.8 billion the year before on stronger exploration and production and gas and power results as well as some benefit from the implementation of IFRS 16. Operating cash flow fell to BRL 17.7 billion from BRL 22.2 billion the year before on an installment payment related to the class-action settlement, devaluation of the real, and payment to the federal prosecutor’s office. The implementation of IFRS 16 also resulted in an increase in debt, which increased the net debt/EBITDA ratio to 3.19 from 2.34 at the end of 2018. Excluding the impact of IFRS 16, the ratio would have held steady at 2.37.

While debt levels remain elevated, we expect them to continue to trend lower. Petrobras remains free cash flow positive, generating BRL 12.1 billion in the first quarter, which should go toward debt reduction. Also, since the beginning of the year, Petrobras has reached asset divestiture deals totaling $11.3 billion, while it's in line to receive $9.1 billion as compensation for the transfer of rights deal. Meanwhile, management continues to high-grade the portfolio by putting up for sale eight of its refineries (representing about half its capacity of 2.2 million barrels a day), its stake in the distribution business, and a network of stations in Uruguay, which should lead to additional proceeds. The refinery sale will not only generate proceeds to reduce debt but also leave Petrobras more leveraged to its higher-return E&P business.

Operationally, Petrobras fared well in the quarter. E&P adjusted EBITDA increased to BRL 25.5 billion from BRL 22.7 billion in the year-ago quarter due to appreciation in the U.S. dollar and lower expenses. While domestic production fell 5% to 2.5 million barrels of oil equivalent a day from 2.6 mmboe/d the year before, asset divestitures and maintenance were the primary cause.

Petrobras continues to add new systems, which has already led to daily production of 2.7 mmboe/d and should ensure production of 2.8 mmboe/d this year. Meanwhile, production costs continue to trend down, falling to $10.44/boe from $11.51/boe last year.

Although refining and marketing adjusted EBITDA fell to BRL 4.8 billion from BRL 5.9 billion last year, this marked a significant improvement over the BRL 1.1 billion loss in the fourth quarter on an improvement in margins and reduction in costs. The gas and power segment increased adjusted EBITDA to BRL 2.2 billion from BRL 1.3 billion last year.