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How Petrobras’s Segment Dynamics Are Changing

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PBR’s upstream segment

Petrobras (PBR), an integrated energy major, has five segments: refining, exploration and production (or E&P), gas and power, distribution of fuels, and biofuel.

Sinking oil prices have changed segment dynamics considerably for Petrobras. In 4Q14, the E&P segment contributed $1.4 billion to PBR’s total EBIT (earnings before interest and tax). This increased to $1.7 billion, or 37%, of the EBIT in 1Q15. However, led by impairments and lower crude oil prices, the E&P segment reported a loss in 4Q15. Brent prices, which averaged $76 per barrel in 4Q14, slipped down to $44 per barrel in 4Q15.

How PBR Is Changing Its Business Model Dynamics

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The situation is similar for PBR’s peers Suncor Energy (SU), Total SA (TOT), and Statoil (STO) that have witnessed a steep fall in upstream earnings in 4Q15. For exposure to large cap and energy stocks, you can consider the PowerShares Dynamic Large Cap Value ETF (PWV), which has ~11% exposure to energy sector stocks.

Downstream segment’s earnings

Due to impairments in the refining segment in 4Q14, the segment posted losses. However, in 1Q15, refining contributed $3.2 billion, or 70%, of the total EBIT. But with impairments in the refining segment in 4Q15, the segment reported a fall in earnings to $0.88 billion. This shows that the fall in crude oil prices has considerably altered segment play in Petrobras. PBR’s overall EBIT displayed losses in 4Q14 as well as 4Q15. Going forward, if impairment levels get lower and the refining environment improves, the refining segment could become an earnings savior for Petrobras in the scenario of lower crude oil prices.

Now, let’s move onto the upstream segment and have a closer look at the performance and portfolio of the upstream segment.

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