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Petrobras Stock (PBR) Introduction
Petrobras Brasileiro S.A. is a Brazilian state-owned multinational energy corporation founded in 1953. It is the largest Brazilian company by market capitalization and the 12th-largest energy company in the world as of April 2024.
Petrobras is headquartered in Rio de Janeiro and is owned and operated by the Government of Brazil. This oil and gas company is a dominant energy player and oil and gas producer. Despite its rich history and world record of deep-water exploration, the company had to battle many struggles.
It almost went bankrupt during the oil crises in the 1970s, but breakthroughs and discoveries helped the company stay afloat. Today, Petrobras may not be part of the ‘’Big Oil’’ companies, but it remains one of the biggest oil and gas companies worldwide.
For years, Petrobras has been an excellent way for American investors to gain exposure to the energy economy of an emerging market. Not only did Petrobras provide solid gains, but it was also well-known in the dividend community for its very generous yield.
This article will look into the history of Petrobras, where it’s going, and if Petrobras stock is still a good investment in 2024.
Petrobras Brasileiro: The Early Years
Petrobras was founded in 1953 by the Brazillian President Getulio Vargas. It was established as a legal monopoly in the country and operated under the slogan: “O petroleo e nosso” or “The oil is Ours.”
The company was tasked with achieving national oil production self-sufficiency. In 1963, the company made its first significant discoveries in the Recôncavo Baiano and Carmópolis oil fields. At the time, these onshore fields helped to boost Brazil’s oil production.
However, the company faced its first challenges during the oil crises of the 1970s, nearly going bankrupt. Thankfully, Petrobras discovered an oil field in the Campos Basin in 1974. This discovery boosted the company’s finances and allowed further offshore expansions and operations.
In 1990, Petrobras’ monopoly ended. The company remained state-owned and began competing and collaborating with its domestic and international peers. Another significant discovery happened in 2000 when “pre-salt” oil fields were discovered deep under the Atlantic Ocean. These massive reserves could transform Brazil into a major oil exporter.
When the company started operations, it produced about 2,300 barrels of oil daily. In 2023, Petrobras produced over 2.3 million barrels daily, bringing in more than $105 billion in annual revenues.
Since its inception, Petrobras has been a pioneer in extracting oil from oil shale. As a result, this has led the company to build industrial-sized retorts to process the large amounts of shale it extracts.
By the mid-2000s, Petrobras had produced nearly 260 tonnes of oil shale per hour using its technology. The company has several segments operating in the oil and petrol energy industries.
Specifically, Petrobras has several initiatives to produce green energy sources and reduce carbon outputs. These include its revolutionary R Diesel product made from mineral diesel and vegetable oils. It reduces 90% of greenhouse gases as an energy source.
Petrobras Brasileiro: Recent History
Petrobras is known for its many successes in the energy industry but also for some colossal failures. For Petrobras, this failure came in 1994 with the introduction of Petrobras 36, which, at the time, was the world’s largest oil platform. The platform itself wasn’t a failure. For the seven years it was in operation, it produced up to 84,000 barrels of oil daily.
That all changed in March 2001 when the rig suffered two explosions caused by overpressure and leaking hydrocarbon gas.
Petrobras 36 could not be saved and burned down, resulting in a complete loss for the company. Even worse, 11 of the 175 workers on board the rig were killed in the explosion.
Petrobras remains a global leader in oil production and energy technology. It is the seventh-largest oil producer in the world as of 2023 and the foundation of the Brazilian economy.
Petrobras Operations
Petrobras’ operations are primarily focused in Brazil but have some international activities. In Brazil, it is responsible for the majority of the country’s oil and gas production.
It operates a large network of refineries, pipelines, and other infrastructure across its home country to process and distribute petroleum products. Its pre-salt region, off the coast of Brazi, is one of the most productive offshore basins in the world.
Here are a few regions where Petrobras operates outside of Brazil:
- Colombia: The Tayrona offshore gas block will start production in 2026.
- Bolivia: Significant investments in Bolivia’s natural gas sector, with interests in exploration, production, and pipelines. It also has a 21% stake in the Río Grande Compression Plant, which is the starting point of the Bolivia-Brazil Gas Pipeline (GASBOL).
- The US: Investments in exploration and production activities, particularly deep and ultra-deep offshore assets in the Gulf of Mexico.
- The Netherlands: Subsidiary offices in one of the largest European financial centers.
- Singapore: Petrobras’ offices in Singapore are engaged in trading activities with its partners in China, India, Southeastern Asia, and the Middle East. The company’s Singaporean operations also encompass petroleum commodity trading activities (oil, diesel, jet fuel, liquefied petroleum natural gas, and others).
Other partnerships and explorations have faced challenges due to political and economic instability in the country. Petrobras had major operations in Venezuela, but they were interrupted. However, earlier in 2024, Chevron successfully re-engaged with Venezuela. As a result, this prompted Petrobras to consider cautiously re-entering the Venezuelan market.
Petrobras World Records
Petrobras set several world records for deep-water oil and gas exploration and production in Brazil and abroad. As a result, this helped the company secure significant contracts and explore out-of-reach oil wells while remaining relatively environmentally friendly. Here are a few examples:
- The Roncador oilfield was discovered in 1996 off the Brazilian coast at a depth of approximately 1,500 meters, with 9 billion barrels of original oil in place.
- The Jubarte oilfield in Brazil’s northern sector of the Campos Basin was drilled in water depths exceeding 2,000 meters.
- The world’s deepest oil platform at a water depth of 2,450 meters was developed in the Gulf of Mexico.
Petrobras Stock Scandal
When we think of oil companies, scandals often come to mind. For example, in 2010, in the Gulf of Mexico, BP caused one of the biggest natural disasters in the world. The environmental impact of this gigantic oil spill had devastating consequences. In Petrobras’ case, the scandal was on a political level.
2004-2014 scandal
Despite having a strong economy, Brazil remains an emerging market. Between 2004 and 2014, a cartel of construction companies overcharged Petrobras and funneled billions of dollars in bribes to Petrobras executives and politicians. The scandal was uncovered in 2014 through a federal investigation codenamed “Operation Car Wash.” In total, 86 high-level businesspeople and politicians were indicted, including former Petrobras directors, executives of major construction firms, and even a former president of Brazil. It contributed to a severe economic crisis, with the Brazilian Real plummeting in value and the country falling into recession.
Petrobras Stock Analysis
Before we begin our analysis of Petrobras stock, it should be noted that we are analyzing the ADR of the company. ADR stands for American Depository Receipt and allows international companies to be listed on the American stock exchanges. These ADR stocks generally trade similarly to the company’s stock on native exchanges. For those of you who are wondering, Petrobras trades on the New York Stock Exchange under the ticker symbol NYSE: PBR.
You will first notice two PBR stocks: PBR and PBR.A. The only difference between the two types of shares is voting rights. It is similar to how Alphabet has GOOGL and GOOG. If you own PBR shares, they are common shares and PBR.A are preferred shares. Historically, PBR.A has traded at a discount to PBR. Both stocks pay out an incredible dividend yield that income investors have been stockpiling for years. But we’ll get more into the dividend in the next section.
Long-time shareholders of PBR will tell you it’s been a roller coaster ride. The total returns for PBR have been 119% since its inception, while PBR.A has returned about 122%. These returns are based strictly on the stock’s performance and do not include reinvested dividends.
Although the returns seem solid, the stock is much lower than what it was trading for in 2008. PBR’s all-time high closing price is $75.19, far from what it is trading for in 2024.
PBR Valuation
As for its valuation, PBR has almost always traded at a low price multiple. As of April 2024, PBR is trading at just 1.0x sales and 4.16x forward earnings.
Despite these low multiples, Petrobras stock has a 5-year revenue growth CAGR of 12.0%. If the stock is so cheap, why aren’t more investors interested?
Like investing in Chinese companies, some perceived geopolitical risks are associated with investing in Brazil. One red flag is that PBR is government-owned. At the most recent earnings call in March 2024, the stock suffered because the board of directors, which includes the President of Brazil, voted down a special dividend for shareholders. While PBR might be an excellent company and stock, it isn’t easy to account for these extraneous factors.
Petrobras Stock (NYSE: PBR)
Petrobras trades on the NYSE under the ticker $PBR (unrelated to Pabst Blue Ribbon beer!). A glance at the company’s stock performance will show that it has seen better days between 2007 and 2010 until the scandal became public.
Petrobras’ stock price began increasing again in the last few years due to rising oil prices and a record demand for fossil fuels. The company also faced uncertainty due to political changes in Brazil. The election of President Lula raised concerns about potential government intervention in the company’s operations and dividend policies.
As of April 2024, PBR’s annual dividend yield is 15.85%, representing a $0.65 quarterly distribution to its shareholders. The company’s revenues may be lower than in 2010, but its net income is higher. After being unprofitable between 2014 and 2017, the company has been setting profit records in the last few years. If Brazil’s political landscape remains stable and Petrobras continues to deliver strong results, the company’s stock price may become attractive again.
Petrobras Stock Dividend
As mentioned, Petrobras stock has gained popularity due to its very generous dividend yield. As of April 2024, PBR has a forward dividend yield of 19.66% and a 5-year average dividend yield of 17.36%. Even with these high yields, the dividend payout ratio for Petrobras sits at just 75.52%.
This might be high for some investors, but it is a manageable payout ratio for a company like Petrobras. It is likely to maintain a high yield and even raise it.
How can Petrobras pay such a high dividend yield to its shareholders? The company has established a minimum net income that needs to be distributed as dividends. This figure can fluctuate based on the board of directors and how the business is doing.
One great part about PBR’s dividend is that the majority shareholder is the Brazilian government. It pays itself dividends as income to fund the country. It’s a unique structure that has worked out for the government and shareholders.
There is likely a pretty safe floor with Petrobras paying dividends. Both PBR and PBR.A payout dividend with PBR.A usually pays out a slightly higher distribution. Petrobras isn’t a dividend aristocrat as it doesn’t always raise its dividend yearly.
Petrobras Stock Competitors
The United States is one of the top energy countries in the world, so it’s easy to find competitors in the markets here. Notable competitors you can invest in include Exxon Mobil, Chevron, Shell PLC, and NextEra Energy.
These energy giants work in similar fields including an increased interest in renewable and green energies.
Petrobras stock trades on its native exchange in Brazil and trades as an ADR on the New York Stock Exchange. Other global energy giants do not trade on the US exchange, so it is very difficult for US investors to buy shares of their stock.
Companies like Saudi Aramco, the third-largest company in the world by market capitalization, are not available to American investors. Neither are companies like PetroChina, CNOOC, or Sinopec, which are some of the largest Chinese energy brands.
Petrobras’ valuation (just over $100B as of April 2024) is relatively attractive compared to its peers. Other oil and gas giants operate in a much more stable political landscape. Here are some of Petrobras’ biggest competitors.
1. Big Oil
Major oil companies have seen record profits in recent years, particularly in the aftermath of the Russia-Ukraine war, which caused a spike in oil and gas prices. The world’s five largest publicly traded oil companies are:
- Exxon (NYSE: XOM): ExxonMobil set a new record with $56 billion in profits in 2022 and the highest revenue among these companies.
- Shell (NYSE: SHEL): Shell increased its revenues, but profits decreased. Its stock price remains near an all-time high.
- TotalEnergies (NYSE: TTE): Total doubled its yearly profit from 2022 to 2023 to $36.2B.
- BP (NYSE: BP): BP’s stock is the weakest of the gang due to its reputation. Its profits decreased by half from 2022 to 2023.
- Chevron (NYSE: CVX): Chevron’s profits and revenues decreased from 2022 to 2023 due to lower oil prices and higher volatility.
In 2022, these companies amassed a combined profit of $196.3B, surpassing the economic output of many nations. These oil giants have used their massive profits to reward shareholders with higher dividends and share buybacks.
They distributed over $100B in shareholder payouts in 2023, and these numbers might rise in 2024. You can add Petrobras stock to your oil list also.
2. Saudi Aramco
Saudi Aramco is the world’s largest oil and gas company, with a market cap exceeding $1T. It is one of the most profitable companies in the world, generating $120B in net income in 2023.
Unfortunately, Saudi Aramco only trades on the Saudi Arabian stock exchange, making it unavailable for most investors. It seems unlikely that this stock will trade in the US for now. However, they are considered a Petrobras stock competitor.
3. China Petroleum & Chemical Corp (Sinopec) (OTCMKTS: SNPMF)
Sinopec is the second-largest producer and distributor of petrochemicals and petroleum products. It had over $440B in revenue in 2023, representing a 14.5 YoY growth. Sinopec trades mainly on the Shanghai Stock Exchange but is also available in the US on the OTC markets. However, Petrobras stock might be safer to trade.
4. Equinor ASA (NYSE: EQNR)
Equinor is a Norwegian multinational energy company engaged in oil and gas exploration and production, as well as the generation of electricity from wind and solar power.
The Norwegian state is the largest shareholder in Equinor, owning 67% of the company’s shares. The company’s pension fund is a significant player in the Norwegian pension fund. As a result, check them out along with Petrobras stock.
5. Russia
Rosneft, Lukoil, and Gazprom are major Russian oil and gas companies. European and American sanctions have hit them very hard, and they stopped trading on most major exchanges.
However, Russia still exports its oil and gas internationally. Until the sanctions are lifted, estimating how much these companies are worth and the extent of their business dealings is difficult. Therefore, watch Petrobras stock instead.
Final Thoughts: Petrobras Stock
Petrobras is a difficult stock to analyze because of so many unknown factors. Has Petrobras historically been a good investment? With this stock, it depends on when you bought it. You are probably fine if you invested in Petrobras after it soared to all-time highs in 2008.
But if you bought it before, you either aren’t holding the stock or are sitting on heavy losses. Even with the generous dividend, you probably aren’t above water.
That’s another factor: the massive dividend that is paid to shareholders quarterly. Investors who have been collecting the dividends for years and reinvesting them are probably sitting in a pretty big position now. Even with minimal capital appreciation in the stock’s price, the dividend income is more than enough to keep most value investors happy.
As for the future, it is anyone’s guess. Petrobras should continue to pay dividends and have the means to do so. Whether or not political forces come into play and affect the company is another thing that cannot be quantified.
It is likely why the stock trades at such low multiples. Petrobras is an excellent way to gain exposure to the international energy sector if you can stomach the geopolitical risk and seek steady income and relatively stable prices.
Petrobras is one of the world’s biggest oil and gas producers. The company began as a monopoly in Brazil but is now part of a free market. Petrobras is known for its ultra-deep oil wells in Brazil and the Gulf of Mexico, which set many world records.
Despite all its successes and environmental progress, it remains undervalued due to a scandal uncovered in 2014 and lingering political tensions in Brazil. Its fate depends on its current and future presidents and the stability of Brazil’s economy.
Frequently Asked Questions
PBR is an excellent stock for those seeking stability and a high dividend yield. It exposes the Brazilian energy market and one of the world’s largest companies.
Petrobras has a relatively safe floor of revenue and profits. It also has a reasonable dividend payout ratio of about 75%, which means the current yield is sustainable. One of the largest shareholders is the Brazilian government, which means it likely won’t be getting rid of that revenue stream for the country anytime soon!
Petrobras pays out dividends quarterly, which means every three months. The company is known to hand out special dividends to shareholders, although these are more unpredictable and irregular. The Board of Directors has also cut the special dividends so that the company can focus on using those funds for other things.
Yes, Petrobras is majority-owned by the Brazilian government. It is a national monopoly, and the government is the largest single shareholder of Petrobras stock. The government owns more than 50% of the outstanding Petrobras shares. The remainder of the shares are split between the NYSE (ADR), non-Brazilian investors, and institutional investors.
No, Petrobras still pays a quarterly dividend. The stock made headlines after the Board of Directors canceled a special dividend previously promised to shareholders. The company pays the regular quarterly dividend to shareholders of both PBR and PBR.A stock.
Petrobras stock has been profitable every year since 2018. In 2022, the company recorded profit numbers.
It is undervalued when we compare Petrobras stock to other oil and gas companies.
Political instability in Brazil and previous scandals.
