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Petrobras Default Probabilities Drop 0.14% But The Firm Still Tops Bond Volume Rankings
- Petrobras one-year default probabilities dropped 0.14% to 1.55% Wednesday, but the firm still was the most actively traded issuer in the U.S. market with $323 million in trading volume.
- Five of the 20 most heavily traded bond issues were Petrobras bonds, led by $94 million in the bonds due in 2021. All five issues traded more than $30 million.
- Vale and Cliffs Natural Resources also had bond issues in the top 5 by trading volume.
- Petrobras faces a perfect maelstrom of tailwinds.
- The company has not cleared up the billion dollar corruption issue which continues to linger.
- Petrobras also faces the double whammy of falling oil prices and a leftist government in power.
- This Brazilian stock has fallen by 45% this year, but still does not look cheap.
Scandal Drives PetroBras To Most Actively Traded Bond Issuer Rank
- PetroBras was the most actively traded issuer in the U.S. bond market on Tuesday, with 856 trades in 9 issues for $309 million in volume.
- Six of the eight most heavily traded bond issues in the market place were PetroBras bonds.
- The most actively traded bond was the January 2021 issue with more than $109 million in volume. GECC had the most actively traded U.S. issue with $30 million in volume.
Not Much Reason To Own Petrobras Following Dilma Election Victory
- Incumbent Brazilian President Dilma Rousseff hung on to defeat challenger Aecio Neves 51-49 in this month's presidential election.
- Fuel companies operating in Brazil like Petrobras have struggled greatly under the Dilma regime as fuel price caps have prevented companies from selling their products at competitive market prices.
- With Dilma's re-election, it's expected that these restrictive business conditions will continue and the stock should be avoided.
Petrobras Reports Increases In Production From Brazil - Is This A Sign Of Hope For The Company?
- Petrobras’ production from Brazil rose by 0.8% in the month of September and amounted to 2,781 thousand barrels of oil equivalent per day.
- The reason behind this remarkable increase in total production in Brazil stems from the launch of six new offshore wells in the Santos and Campos basis.
- Oil demand forecasts have been cut by the IEA, which indicates that oil prices are likely to decline in the future as oil demand remains weak.
- The results of the second quarter showed that the company suffered from declines in its margins, even though revenues for the company increased.
- The 52 week range for share prices is $10.20-$20.94. The 1 year estimate for share prices is at $18.55.
Dilma's Re-Election Sparks Sell-Off In Petrobras, But I Am Still Not Buying
- Dilma Rousseff won Brazil’s presidential election by a narrow margin, sparking a huge selloff in Petrobras shares.
- Although Petrobras shares have fallen to around $11 and appear attractive in-terms of valuation, the stock is a value trap due to the company’s uncertain outlook.
- Petrobras might be allowed to raise gasoline prices a few times but the price cap is not likely to be removed completely, which is bad news for the company.
- Petrobras has struggled in recent years as its refining unit has made losses due to the Brazilian government’s cap on fuel prices.
- The outcome of the Brazilian election could possibly decide Petrobras’ future.
- However, Petrobras’ is not worth the risk even if pro-business Aceio Neves wins Sunday’s election.
- Strong undervaluation with P/B of 0.28.
- Government is the main reason why Petrobras has lost over $230 billion in equity value since 2009.
- Coming elections could bring a wave of change. Is it just hopeful dreaming?
- We present the first-round results of the Brazilian presidential-elections 2014.
- We describe the effects that we expect from the results on PBR's price.
- We conclude that it is too early to expect a substantial and lasting positive effect for Petrobras.
Petrobras Has Dug Out Good News From Sergipe-Alagoas Basin
- New natural gas discovery should add to Petrobras’ reserves. This is one of a series of discoveries that the company has managed to make in the same region.
- The company announced positive Q2 results recently. And analysts rated the stock as ‘hold’ before the gas discovery.
- The earnings per share and revenues are expected to increase in the future. Those looking for a long-term investment would find a window of opportunity with Petrobras.
Petrobras: Why It Is Looking At A Potential 50% Upside Now
- We describe the effects past elections had on PBR's share price.
- We formulate expectations about the company's performance for the upcoming election.
- We conclude that recent developments might carry a 50% upside potential.
- Already repeatedly unable to meet production and financial goals, the falling price of crude and weak product markets both at home and abroad continue to plague this SuperMajor.
- Scandal, bribes, kickbacks, inefficiencies and government policy of this captive national oil company are boiling forth faster than they can be headlined.
- Brazil's elections are swinging strongly towards socialist Marina Silva. She has indicated an intention to curb Petrobras, decrease focus and reliance on oil and gas and redirect national treasure elsewhere.
- The government's majority stake is both a blessing and a curse for Petrobras.
- The company has shown above average growth in revenues.
- The shift towards local oil would reduce the adverse impact of fuel price controls.
- Brazilian elections pose an opportunity for gasoline/diesel Prices in Brazil to return to parity.
- Petrobras appears to be undervalued, based on its P/B, EV/EBITDA, and EV/EBITDAX metrics/multiples.
- Petrobras has found some success with extracting oil from its pre-salt reserves, with significant projected increases in oil production from these reserves over the next few years.
- Despite the fact that Petrobras missed analysts’ estimates in the second quarter earnings report the company’s fundamentals are intact.
- The company plans to invest $153.9 billion mainly to develop pre-salt and post-salt production during 2014-2018.
- The company is positioned to produce 3.2 million barrels of oil per day by the end of 2018 and 4.0 billion of oil per day during 2020 to 2030.
- Currently the Brazilian government has an approximate 54 percent stake in the company making it a state-sponsored monopoly without any real competition.
- In the recently published article on Forbes.com, Mike Koza, a prominent investor, sees the company’s potential doubling in four years.
Petrobras Would Make The Most Of Brazil's Escalating Natural Gas Demand
- PBR has extended its agreement with Bolivian state-owned firm YPFB, which would continue to supply natural gas to a thermoelectric power plant in Brazil.
- With Brazil’s southeast traversing its worst drought in nearly half a century, the role of PBR becomes extremely prominent.
- Growth in hydrocarbon production coupled with the national grid’s increasing electricity demand, provide the Brazilian oil and gas giant the ideal opportunity to bolster its revenue numbers.
- Petrobras has world-class reserve and resource potential, but it might be too much to digest.
- The company's debt levels are at wildcat E&P levels, without the balance sheet strength of other supermajors.
- Petrobras has been used as a piggy-bank by the Brazilian government; will this ever end?
- Petrobras will not go bankrupt if the Brazilian economy or oil prices slide but the debt will get uncomfortable attention.
- The stock has run up on expectations that a new government will be more pro-shareholder friendly, but wait for a better opportunity down the line.
Can Petrobras Unlock The Underlying Value In Its Reserves?
- Recent production growth has been lackluster, but Petrobras's enormous offshore oil reserves could fuel comp group-leading production growth for the next decade.
- Large refining losses are an ongoing risk, exacerbated by a non-competitive refining base and government price controls.
- Petrobras looks underpriced within its traditional EV/EBITDA metrics and long-term cash flow analysis suggests upside to $20 and beyond.
Fri, Oct. 24, 11:11 AM
- An outlier of a poll shows opposition candidate Aecio Neves with a sizable (though shrinking) lead over President Dilma Rousseff. Other polls have consistently shown Rousseff with a lead of six to eight percentage points. Still to come is big debate between the two contenders tonight. The election is on Sunday.
- The credibility of opinion polling is somewhat suspect in Brazil, with different surveys showing wildly different results, not to mention all the major pollsters failing to capture the extent of Neves' support ahead of the first round of elections earlier this month.
- The Bovespa is up 3.6%. EWZ +5.3%
- Petrobas (PBR +6.3%), Vale (VALE +4.4%), Itau Unibanco (ITUB +6.1%), Banco Bradesco (BBD +5.5%), Gol Linhas (GOL +6.6%)
- ETFs: EWZ, BRF, BRXX, EWZS, BRZU, BRAQ, BZQ, BRAZ, BRAF, UBR, BRZS, DBBR, FBZ
- The iShares S&P Latin America 40 (ILF +3%)
- Broad South American ETFs: ILF, LBJ, GML, EEML, FLN
Tue, Oct. 21, 4:38 PM
- Petrobras (NYSE:PBR) debt rating is cut one notch to Baa2 with a negative outlook by Moody's, which says the company’s leverage is high and likely to rise.
- PBR's debt has increased $25B in H1 of this year to $170B, pushing the ratio of total debt to adjusted earnings to 5.3x, Moody’s says, adding that the company’s earnings are hurt by its inability to raise local prices for oil products.
- The Baa2 rating is the second-lowest investment grade and in line with the rating for Brazil’s government debt.
Tue, Oct. 21, 9:14 AM
Mon, Oct. 20, 4:39 PM
- Optimism that Petrobras (NYSE:PBR) would benefit if Brazilian Pres. Rousseff is voted out of office is unfounded, Jim Chanos tells attendees at the Robin Hood Investors Conference in NYC today.
- PBR regularly misses production guidance, has persistent negative cash flow from deepwater projects, net debt has increased, and its returns on assets have fallen to 4.5% and well below its 15% cost of capital, Chanos says.
- Rousseff and opposition candidate Aecio Neves are in a dead heat as election day approaches, but Chanos notes that no Brazilian president has lost a re-election campaign since a 1997 constitutional amendment allowed for them to serve more than one term consecutively.
Mon, Oct. 20, 12:05 PM
- DryShips (DRYS +9.7%) is nearly 10% higher after Ocean Rig UDW (ORIG +1.5%) says it is lending its parent company up to $120M of immediate liquidity through a short-term unsecured loan to be used, if needed, to repay DRYS' 5% convertible notes maturing Dec. 1.
- ORIG also says it has been awarded extensions of contracts for drillships Ocean Rig Corcovado and Ocean Rig Mykonos by Petrobras (NYSE:PBR).
- Additionally, ORIG says its current stock price does not reflect the true value of company after being adversely affected by recent volatility of oil prices.
Mon, Oct. 20, 10:32 AM
- Brazil Pres. Rousseff over the weekend for the first time admitted evidence exists that money was illegally diverted from Petrobras (PBR -3.4%), and says the state would seek reimbursement of any illegally diverted funds.
- According to local reports, top PBR executives have for years taken bribes to direct multimillion contracts to specific contractors, with part of the alleged kickbacks siphoned to politicians of Rousseff’s Workers Party and other parties that supported the government.
- “I never impeded the investigation,” Rousseff said in yesterday’s debate with challenger Aecio Neves in the third of four debates ahead of the Oct. 26 presidential runoff vote.
Fri, Oct. 17, 5:18 PM
- A fifth Chevron (NYSE:CVX) drillship has arrived in the deepwater Gulf of Mexico, as newbuild ultra-deepwater drillship Pacific Sharav will start work for CVX under a contract with Pacific Drilling (NYSE:PACD).
- The vessel, working under a five-year charter at a dayrate of $555K, is the fifth drillship contracted by CVX for deepwater operations in the Gulf, where it aims to bring on stream the Jack-St Malo project later this year.
- Meanwhile, PACD is said to be touting sister drillship Pacific Meltem in a Petrobras (NYSE:PBR) tender for drilling work in the giant Libra pre-salt area off Brazil but has yet to line up a contract for a further newbuild drillship under construction.
Thu, Oct. 16, 11:58 AM
- Petrobras (PBR -6.7%), the subject of a Brazilian tribunal investigating cost overruns in state spending, is set to pay $21.6B to complete its Comperj refinery, ~60% more than budgeted.
- The tribunal's audit report cites discrepancies between different government agencies, as well as within different PBR divisions, over investments needed for the refinery, and that PBR management has been “reckless” with irregularities in the omission of technical analysis, overpaying for contracts and a lack of effective controls.
- Comperj will cost $130K for each barrel of production capacity, vs. $80K at the Abreu e Lima refinery which CEO Graca Foster called in 2012 “an experience Petrobras should never repeat” for its increased costs and several changes in the project.
Thu, Oct. 16, 9:13 AM
Wed, Oct. 15, 12:27 PM
- Petrobras (PBR -8.9%) - whose shares have been volatile this year, to say the least - is down sharply today, even though lower oil prices ought to help the state-run company, according to Morgan Stanley, which has an Equal Weight rating and a $17 price target.
- The firm sees lower oil prices into 2015 as a net positive for PBR, allowing the company and government to close the fuel price gap with less effort and lower inflation impact, but it also notes that Brent crude must regain strength in the long-term, since it is the key driver of PBR's exploration and production NAV.
- Morgan Stanley’s commodities team thinks oil prices may not go much lower because ”much of the last leg of the downside has simply been a result of financial flows, sentiment and macro fears.”
Wed, Oct. 15, 9:17 AM
Mon, Oct. 13, 11:30 AM
- Presidential challenger Aecio Neves over the weekend received the endorsement of Marina Silva - the 3rd-place finisher in the first election round - and the latest poll shows Neves outgunning incumbent Dilma Rousseff by 52.4% to 36.7%.
- The runoff election is set for October 26.
- The Bovespa is soaring, up 4.4%, led by Petrobas (PBR +9%), Vale (VALE +5.2%), GOL Linhas Aereas (GOL +6.4%), Banco Bradesco (BBD +8.8%), and Itau Unibanco (ITUB +8.7%).
- The iShares MSCI Brazil Index (EWZ +5.1%).
- Brazil ETFs: EWZ, BRF, BRXX, EWZS, BRZU, BRAQ, BZQ, BRAZ, BRAF, UBR, BRZS, DBBR, FBZ
- The iShares S&P Latin America 40 Index (ILF +3.7%).
- Broad South American ETFs: ILF, LBJ, GML, EEML, FLN
Mon, Oct. 13, 9:15 AM
Fri, Oct. 10, 10:17 AM
- A former Petrobras (PBR -4.6%) executive testified yesterday in a Brazilian federal court that kickbacks were paid to members of the ruling Workers’ Party, a claim that could provide ammunition to challenger Aecio Neves in his presidential election runoff against incumbent Dilma Rousseff.
- According to accusations by PBR's former supply and refining director, 3% of the state-run company's contracts were used for bribes, with two thirds of that amount being directed to the Party.
- The allegations are the latest among several corruption scandals tied to PBR which have become part of the election campaign; the hold will be held Oct. 26.
Tue, Oct. 7, 2:22 PM
- Petrobras (PBR +7.1%) and other Brazilian stocks continue to climb higher after Sunday's presidential election resulted in pro-business candidate Aeceo Neves showing surprising strength in making the runoff against incumbent Pres. Rousseff.
- Also: CIG +9.3%, EBR.B +3.9%, ELP +3.2%, EWZ +2.4%, BBD +2%, VALE +1.8%, ITUB +1.8%.
- Separately, PBR says its latest well in the Brigadeiro discovery evaluation plan area has confirmed the presence of good quality oil in the ultradeep waters of the Espirito Santo Basin post-salt deposits.
- PBR, with an 89.9% stake, is the operator of the consortium developing the project.
Mon, Oct. 6, 12:46 PM
PBR vs. ETF Alternatives
Petroleo Brasileiro SA Petrobras operates as an integrated oil & gas company in Brazil. Its business is structured into segments such as Exploration & Production; Refining, Transportation & Marketing; Distribution; Gas & Power; Biofuel; & International.
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