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How Are Petrobras’s Cash Flows Positioned?

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Petrobras’s cash flows from operations, investing, and financing

In 1H16, Petrobras’s (PBR) cash flow from operations stood at $10.7 billion, falling from $13 billion in 1H15 due to a fall in oil prices. PBR’s cash outflow from investing stood at $6.8 billion in 1H16 compared to $5.7 billion in 1H15.

Petrobras’s cash flow from financing activities mainly consist of its changing debt levels. Petrobras hasn’t paid dividends to its shareholders. However, Petrobras’s peers have been paying dividends. PBR’s peer Suncor Energy’s (SU) dividend yield stands at 3.2%. Comparatively, Total SA (TOT) and Eni (E) have higher dividend yields of 5.7% and 6.2%, respectively.

For exposure to high-dividend stocks, you can consider the Vanguard High Dividend Yield ETF (VYM). The ETF has ~10% exposure to energy sector stocks.

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Analyzing Petrobras’s cash flow strategy

In 1H16, Petrobras generated $10.8 billion in cash from operations, but had cash outflows of $7 billion in the form of capital expenditure and $19 billion in the form of the repayment of principal and interest, amounting to $26 billion. So, how did the company make up for the difference of $15.2 billion in its cash flows?

Broadly, due to lower cash flows from operations, the company had to raise debt and draw down its cash reserves. Petrobras’s long-term financing proceeds stood at $9 billion in 1H16. It met the remaining shortfall by drawing down its cash reserves.

How will Petrobras’s cash flows shape up going forward?

As discussed earlier in the series, Petrobras intends to focus on its core business areas—integrated oil and gas value chains—to produce steady cash flows. 

To augment its cash flows, the company plans to focus on reducing its costs, divesting non-core assets, and cutting its capital expenditure. Thus, going forward, Petrobras’s cash flow position will likely depend on the level of crude oil prices and the success of its plan.

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