Bolsonaro says Petrobras could cut profit to hold down fuel prices

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Petrobras (PBR -1.9%) opens lower after Brazil President Jair Bolsonaro said the company could reduce its profit to prevent fuel prices from exploding due to Russia's invasion of Ukraine, according to Reuters.

Petrobras' policy of seeking parity between domestic fuel prices and international markets has angered many Brazilians as the cost of Brent crude has soared, and a rising number of politicians has said Petrobras should help shoulder the burden.

CEO Joaquim Silva e Luna has told Reuters that Petrobras has not yet made a decision on fuel price adjustments.

Separately, Petrobras has not called off or altered talks to sell an unfinished fertilizer plant to Russia's Acron, Reuters also reports, despite Western sanctions on Russia.

Seeking Alpha contributor The Investment Doctor says he is "very confident in Petrobras' prediction of paying at least $10/ADR in dividends" in the 2022-26 period.

Comments

[Johnny Skyhook]

UPDATE:

Petrobras has been given more time to complete its refinery sales. For any newcomers to this, Petrobras in 2019 agreed to sell 8 of its 13 refineries and base oils plants, representing a total of 1.1 million b/d of refining capacity.

Given the company has a virtual state monopoly on refining, and was originally founded as a refiner in the 1950s, this decision in 2019 was enormously significant for the company and the Brazilian downstream market (also BR Distribuidora, a huge fuels distributor was part of the plan -- and sold last year). While the touted idea was to open up the fuels market to competition, some observers linked the sales to the Car Wash corruption scandal as an effort to scale back the company in a step toward privatization.

Here is a good backgrounder on that process:

www.spglobal.com/...

The process has not gone well, and so far only 3 of the facilities have been sold, and 2 didn't receive any bids at all. The continued political drama over fuel prices and difficulty over reaching an agreeable valuation for these refineries have stalled the process entirely since late 2021.

In the latest sequel of the soap opera, Brazilian anti-trust have shown their usual flexibility and agreed to give more time to Petrobras to complete the transactions:

www.reuters.com/...

This is not the first extension of the deadline, and I remain skeptical that these transactions will occur this year. While not impossible, given the political risk implied by elections in October, and turmoil in resource markets in general related to Ukraine, it is an adverse environment to carry out what has already shown itself to be a difficult series of transactions.

What this implies in my view, is that if opposition candidate Lula wins the election in October, it is not inconceivable that Petrobras will end up holding onto its refineries, and even build more, given Lula's intention to raise refining capacity in Brazil to address consumer fuel prices.

EDIT: Here is more on the fuel price drama, with a good analysis from Bloomberg if you missed it:

www.bloomberg.com/...

[Johnny Skyhook]

Petrobras just announced wholesale fuel price increases:

www.tradingview.com/...

[MDN1]

@Johnny Skyhook Thanks for posting. Finally some clarity. Stock going higher

[Johnny Skyhook]

@MDN1 I hope so but it should have gone up more in my opinion. There are also rumors the truckers are going to strike again in Brazil over diesel prices which worries me a bit.

[MDN1]

Anyone see the news regarding Guedes? Flashed by a headline real quick on BBERG this morning. To fast to read it

[pat45]

can the USA bid on fertilizer plant. Brazil is pretty close to USA and we need it

[NorthZorro]

It seems all the stars are aligned for a bull run in Brazil -- Years of stock market underperformance have driven investors away. Commodity bull market has just started to get people's attention. Being far away from the war zone will attract hot money looking for a home. May pick some EWZ for a starter.

[Le Demiurge]

@NorthZorro long Vale, EWZ FLBR, PBR, PBR.A

[NorthZorro]

@Le Demiurge You can't go wrong with VALE or PBR. I used to own CZZ (now CSAN), and I wanted to own it again. Will do some homework on it today.

[nboyan]

I have a theory when the PBR decides to pay dividend/s official from gov. reveal and price lower down. Sell around 20$ not before. I think the new star rise on brazil's horizon election and will win -- Sérgio Moro.

[Finans2016]

@nboyan Or at least then maybe at the end Moro could support Bolsonaro, or join on the Government, and this way together receive more votes than Lula.

[Johnny Skyhook]

@nboyan I have also been watching Moro's progress and commented on this a few months back. Since then some negative press has seemed to diminish his popularity in the polls but I agree he is still a viable candidate, probably the only viable alternative to Lula or Bolsonaro. Strictly from the perspective of Petrobras shareholders, I think he would be the most benign candidate.

[FloridaSun]

And just like that my enthusiasm for investing in PBR just dropped.

[Le Demiurge]

Is everyone scared of LULA or BOLSONARO? Last time Petrobras had a bull run Lula was in power. They’re both just bluffing they wont do anything just like they did nothing during the last bull run.

[Le Demiurge]

If I’m not mistaken the govt collects the dividend and uses it as revenue. Why the heck would they interfere with their source of tax income? He’s just bluffing.

[Finans2016]

@Le Demiurge agree, more likely they would increase withholding tax on dividends to foreign shareholders.

[Ramon Vredeling]

@Le Demiurge wouldn't count on it. He clawed back some of the deficit to Lula in the polls, but if commodity prices stay like this, usually it will be very costly for current administrations.

People first and foremost vote with their wallet and security in mind. In the end Petrobras is a NOC, not an IOC. Some kind of compromise will likely be found, so Bolsonaro can appease the constituency.

[translate]

@Le Demiurge
yes, and this is another aspect where the trump analogy applies.
Bolsonaro would have no problem cutting some gov revenue as long as his skim is retained.

[darnoc111]

If you can't make a profit what's the sense of being in business? Maybe they should pressure all oil companies to produce more oil to bring down prices. But that's not going to happen since so many countries only want green energy. As prices for oil rapidly rise soon the world will be in recession or worse.

[Joe$]

This is what got PBR in trouble the last time. I’m out.

[jdadyfinance]

Price controls are coming globally, make no mistake.

Before the midterms in US
with predictable results.

There is nothing conservative about Brazil or its politics,
that’s not a judgment just a fact.

[nanucky]

Petrobras should sell all its mid-stream companies and get rid of its insane government control that the company is subjected to. Crazy!

[The Stock Stooge]

@nanucky Agreed. If they can continue divesting mid-stream and downstream that would be great. Coupled with continued offshore development outside of Brazil, jobs that they can win based on scale and expertise, they can gradually reduce their a little of their dependence on Brazil.

Unfortunately I suspect Lula would make them invest more in downstream assets. Some downstream investments could be fine. For example, if they built state of the art nitrogen fertilizer facilities that would be great. Invest and build a state of the art fertilizer facility to process Petrobras's growing natgas production, and then spin off into a separate company. Fantastic. Unfortunately they will probably just waste large amounts on refineries.

[Le Demiurge]

@The Stock Stooge are they growing natural gas? How much of their revenue is natural gas? From my research its 20%? I would prefer it would be 50/50 since natural gas is the future.

[The Stock Stooge]

@Le Demiurge It's a relatively small percentage. Brazil right now is actually an LNG importer, especially in drought years. My understanding is that PBR produces quite a bit of gas in its offshore fields, but that this gas is being reinjected because the fields are so far offshore that it's difficult to run pipelines to them. PBR's 5 year plan doesn't show massive NG production growth but Brazil does expect continued NG production growth. So not sure how it plays out. Over time I suspect PBR manages to take away more of the gas from its offshore wells.

[Orion1963]

Socialist governments always find a way to destroy their productive class while growing their wealthy political class.
It always ends the same, the middle class is penalized. Ex. In the U.S., wealthy individuals purchase E.V.'s with tax credits provided by the middle class working man, who can't afford an E.V.

Apply the same principle to wind/solar power. The middle class pays for AOC's Green New Deal via tax theft.

[Jcraig304]

@Orion1234 Bolsonaro is the conservative not the liberal…..oops there goes that GOP talking point.

[jdadyfinance]

@Jcraig304
yeah OK
conservative for Brazil
not sure what the GOP thing is about but hope u feel better

[HOSEDBY YOU]

Why don’t they lower prices on beef and iron ore?

[zip6485]

Pre-election ploy?

[User 56030286]

Man if Joe Biden did this the right wing oil/gas stock holders over here would lose their shit.. I wonder why one country blames the greed or corporations, and another praises it?

[RightWingAnon]

This will be the trend of the decade. The breakdown of global trade, rising nationalism, authoritarianism, war, famine, and chaos ushering in a dystopian NWO. Buckle up.

[Doctor E]

@JMalin Humanity has no generational memory.

[RightWingAnon]

@Doctor E

Agree. For all of our so called "progress", we've sure dispelled with a lot of practical wisdom that brought us here to begin with.

[pro-vigil1]

@JMalin how different is bolsonaro from trump? we are the same here. it's a shame biden wasted his first year pursuing a progressive agenda. unifying the country should be his main focus. if he does not do so, we will get another authoritarian sooner or later.

[Slade_01]

Another good reason not to own $PBR. Politicians find a way to ruin everything.

[occumsdevotee]

@911Slade Take a step back for a second. The price is this low because there is political risk. If he can somehow quantify the risk and assign a cost to it the stock should benefit. Then it won’t be arbitrary and it would be defined in some sense.

They are going to pay $10+ per ADR at $75 a barrel BRENT over the next few years.

Let’s say they offset everything over $90/95 Brent who cares. If this gives them the freedom to payout the dividends up to that amount this is still a cash cow and you could have a ridiculous return. Especially if the price appreciates

Even if they siphon of $20 a barrel and leave us everything under $90. I still think we have 150% returns with the dividend over the next 5-6 years.

[Michael123a]

@occumsdevotee Brazil's confiscatory practices have no bounds. I just could not stand to be in partnership with a government whose main source of revenue is siphoning off their productive businesses! I was hoping that the Govt may leave PBR alone. Alas it will not. Sold all. Good bye!

[Slade_01]

@occumsdevotee Yeah, and Venezuela once upon a time produced over 3 million BOE until they decided not to pay partners and suppliers because of government dictates. Many (like COP) remain in arbitration or other forms of litigation a decade or so later.

Thanks but CNQ, my largest oil position ahead of XOM, CVX, COP, SU, and other smaller American upstreams are reliable and the Canadians have massive reserves requiring very little capital to maintain.

But you are correct, for those who have risk appetite they may get well rewarded. However, I'm not interested, similar to copper investments in Peru.