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Analyzing Petrobas Stock Pre-1Q16

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PBR’s stock performance

Since February 2016, integrated energy stocks have risen due to spikes in oil prices. Rising oil prices are usually favorable for upstream segment earnings of integrated energy companies. Since mid-February, Petrobras (PBR) stock has more than doubled.

PBR’s peers YPF Sociedad Anonima (YPF) and PetroChina (PTR) rose 21% and 16%, respectively, during the same period. Statoil (STO) rose steeply by 25%. The PowerShares Dynamic Large Cap Value ETF (PWV) has ~11% exposure to energy sector stocks.

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Petrobras’s capex, cost reduction, and divestment plans

Petrobras incurred capex (capital expenditures) of $23 billion in 2015. Most of this was in upstream segment. PBR has lowered its capex guidance to ~$20 billion for 2016 compared to earlier guidance of ~$27 billion. PBR plans to combat lower oil prices by cutting capex, lowering costs, and divesting non-competitive assets.

PBR also plans to reduce its manageable operating costs from ~$29 billion in 2015 to ~$21 billion in 2016, with the 2016 target being under revision. To achieve this, Petrobras plans to bring efficiency in operations, rationalize business structure, reduce input and transport cost, and optimize personnel costs.

Petrobras is also actively considering an asset sale program to divest assets such as onshore fields in Brazil. In fact, Petrobras (PBR) has already concluded negotiations for the sale of a stake in Petrobras Argentina and distribution assets in Chile. The divestment activities are expected to continue in 2016.

In the final part of our series, we’ll see why no one is giving Petrobas a “buy” recommendation.

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