Petrobras: A very good Oil & Gas opportunity

Miguel Braun · Jul 28, 2022 · 3 min read

Petrobras is a Brazilian company specializing in oil and gas production, being one of the largest companies in Latin America. They are also one of the largest oil and gas producers in the world, and are mainly dedicated to the exploration, production, refining, generation and commercialization of energy. They have a large base of proven reserves and have acquired great experience in deep and ultra-deep water exploration and production since they began exploring the coast of Brazil decades ago, after the first subsea well in the Campos basin in 1971.

They operate and produce most of Brazil's oil and gas, where they almost have a monopoly in this regard. Most of their proven reserves are located in southeastern Brazil and their proximity allows them to optimize their infrastructure and limit exploration, development and production costs. The Campos and Santos basins off the southeastern coast of Brazil are expected to remain the main source of the company's future growth in proven reserves and oil and gas production.

Petrobras has 3 main activities:

Exploration and production: Its activities focus on Brazil's deep and ultra-deep water oil fields, which represented 95% of its total production in 2021. The Brazilian exploration and production assets represent 91% of its blocks and fields worldwide, 99% of its global oil production and 99.5% of its oil and natural gas reserves.

Refining, transport and marketing: This segment covers refining, logistics, transport, marketing and trading activities of crude and derivatives in Brazil and abroad, as well as ethanol exports and petrochemical operations, such as shale extraction and processing. They operate and own 12 refineries in Brazil, and also operate a long and complex structure of pipelines, terminals and an entire fleet of ships that transport the extracted products worldwide.

Gas and Energy: This segment comprises the logistics and commercialization activities of natural gas and electricity, LNG transport and trading, electricity generation through thermoelectric plants, as well as stakes in gas transport and distribution companies in Brazil and abroad. It also includes natural gas processing and fertilizer operations. They have 15 thermoelectric plants they use to produce the energy they then sell.

Numbers:

Conclusions:

A very good opportunity. As we can see, the company trades very close to book value but also generates very good returns on capital employed and has the possibility of continuing to grow. In addition, it pays excellent dividends... which, depending on what price you buy at and how the company does, are in the order of 14% to 20%.

The risk for this stock is that the oil price falls, something that doesn't seem like it will happen in the short to medium term.

The company has also been increasing its revenues relative to 2021, which had also been a good year. Petrobras' results have been excellent and should continue this way as long as oil prices hold. Even if they eventually fall again, in the meantime they will distribute a lot of dividends and grow their net worth and their investments in exploring and producing oil.

Recommendation: STRONG BUY.