Company Reports

Petrobras’ spending plans have stabilized in the latest iteration of its five-year plan, after peaking in earlier plans that included larger energy transition investments.

Petrobras' second-quarter earnings soared compared with the year before, largely on higher oil prices and record oil production, further capitalizing on the high-price environment. Debt was steady, but management still nearly doubled the dividend from first-quarter levels.

Petrobras reported sequentially improved first-quarter results, supported by higher oil prices and production of 3.2 mboe/d, up 4% from end-2025 levels. Free cash flow nevertheless declined 15% year over year, weighing on payouts.

Petrobras’ spending plans have stabilized in the latest iteration of its five-year plan, following a peak in the previous plans that incorporated greater energy transition investments.

Petrobras’ fourth-quarter results were weaker sequentially, as strong downstream performance was more than offset by a 13% decline in E&P-adjusted EBITDA. Operational cash generation improved amid favorable working capital dynamics, but higher cash capital expenditure led to a 33% cut in the payout.

Petrobras reported third-quarter results ahead of market expectations. Higher hydrocarbon production and a modest appreciation in Brent prices supported free cash flow generation, allowing the company to raise its dividend from the disappointing payout in the prior quarter.

Petrobras’ five-year spending plans continue to creep higher after a meaningful increase two years ago when it added low-carbon investments for the energy transition. The company has not returned to the profligate spending of a decade ago that first placed Petrobras in jeopardy. However, it is straying from the capital discipline and generous payouts that improved the balance sheet and attracted investors.

We've updated our midcycle oil price assumption. Our 10-year forecast marries our bullish in-house oil demand view with Rystad's supply projections, which align with our revised, long-term take.

Petrobras' reported second-quarter adjusted results fell only slightly from the prior quarter, as a 10% drop in Brent prices was mitigated by a 5% rise in production to 2.9 mmboe/d. However, a 7% capex increase and one-off events weighed on free cash flow, leading to a 26% dividend reduction.

Crude oil prices were only up about 1% in early trading on June 23 after the US bombed Iranian nuclear sites over the weekend. Before this rise, oil prices had increased nearly 21% in the last month compared with oil equities, as measured by the Energy Select Sector SPDR Fund's 9% gain.

Petrobras' first-quarter results fell from a year ago on lower volumes and oil prices. After a spike in the fourth quarter to $5.7 billion, capital expenditure normalized in the first quarter to $4.1 billion, in line with full-year guidance, supporting a dividend increase.

Petrobras’ five-year spending plans continue to creep higher after a meaningful increase two years ago when it added low-carbon investments for the energy transition. The company has not returned to the profligate spending of a decade ago that first placed Petrobras in jeopardy. However, it is straying from the capital discipline and generous payouts that improved the balance sheet and attracted investors.

Petrobras reported poor fourth-quarter results, significantly missing market expectations. The negative earnings, increased spending, and disappointing shareholder distribution likely sparked renewed investor concerns, triggering a general selloff of its shares on the announcement date.

Petrobras' third-quarter earnings exceeded market expectations even as reoccurring adjusted EBITDA fell to $11.6 billion from $13.7 billion a year prior due to lower oil prices and narrower refining margins. Management announced a dividend of BRL 17.1 billion, an increase from the second quarter.

With its latest five-year plan, Petrobras meaningfully increased spending levels as it incorporates investments for the energy transition. While the latest plan is by no means a return to the profligate spending of a decade ago that first placed Petrobras in jeopardy, it is—along with a reduction in the payout ratio—a departure from the capital discipline of the last few years that resulted in a healthier balance sheet and large shareholder payouts.

No-moat Petrobras reported recurring adjusted EBITDA of BRL 62.3 billion, up from BRL 59.1 billion a year prior. Reported negative net income was the result of one-time items such as a tax settlement, which had no cash impact. Higher upstream earnings from higher prices and volumes offset lower contribution from refining and marketing and gas and low carbon energies. Production during the quarter increased to 2.70 million barrels of oil equivalent per day from 2.64 mmboe/d a year ago. Production through the first half of the year of 2.74/mmboed, with 81% from presalt, is in keeping with the 2.8 (+/4%) mmboed from the strategic plan.

Following first-quarter earnings, Petrobras CEO Jean Paul Prates has resigned. Prates had reportedly clashed with Brazilian President Luiz Inacio Lula da Silva about the decision not to pay out special dividends earlier this year, as expected by the market. Since Lula took office in early 2023, the company has come under pressure for its prior strategy of divesting lower-quality assets, focusing investment on offshore oil assets, and paying out a high percentage of free cash flow to shareholders. As a result, it increased investment, including into renewables, and reduced its payout ratio to 45% from 60% with its recent strategic update. We found both actions to be detrimental to shareholders.

No-moat Petrobras reported recurring adjusted EBITDA fell to BRL 61.5 billion from BRL 75.6 billion the year before largely on weaker refining results and higher foreign-exchange losses. Production during the quarter fell to 2.78 million barrels of oil equivalent per day from 2.94 mmboe/d in the fourth quarter due to stoppages and planned maintenance but was higher than the 2.68 mmboe/d in the first quarter last year. We see no impact to Petrobras’ longer-term production targets. Our fair value estimate is unchanged.

With its latest five-year plan, Petrobras meaningfully increased spending levels as it incorporates investments for the energy transition. While the latest plan is by no means a return to the profligate spending of a decade ago that first placed Petrobras in jeopardy, it is—along with a reduction in the payout ratio—a departure from the capital discipline of the last few years that resulted in a healthier balance sheet and large shareholder payouts.

On Friday, March 8, Petrobras shares fell as the board-approved fourth-quarter dividend of BRL 1.10 ($0.44 per ADR at current exchange rates) was a decrease from third-quarter levels and likely less than what the market was expecting. The company also repurchased BRL 2.7 billion worth of shares, returning in total BRL 17.5 billion to shareholders in the fourth quarter. Petrobras did not pay an extraordinary dividend for the second straight quarter, although it met its policy by returning 45% of free cash flow, which remains highly competitive with integrated oil peers. The market shouldn’t be all that surprised, though. As we’ve previously noted, this is the beginning of a shift from a high shareholder distribution during 2022 in favor of larger future investments, including low carbon. We previously expressed our concerns when the payout reduction and latest investment plan were first announced. Our $15.30 fair value estimate and no-moat rating for Petrobras are unchanged, as shares were overvalued before March 8, in our view.