Petróleo Brasileiro S.A. or Petrobras PBR recently announced its Business and Management Plan ("BMP") for 2018-2022, which shows marginally higher investments than the 2017-2021 period. The new five-year plan forecasts $74.5 billion in investment compared with $74.1 billion for 2017-2021, projected earlier.

Notably, the BMP 2018-2022 focuses on increasing production and supporting company's finances. While around $60.3 billion will be used in exploration and production, nearly $13.1 billion is likely to be spent on refining and natural gas. Petrobras intends to boost average production from an expected 2.7 million barrels of oil equivalent per day (Boe/d) in 2018 to 3.55 million Boe/d by 2022. The plan will be supported by the eight platforms going into production in 2018 and 11 more coming online by 2022.

Petrobras happens to the world's most indebted oil company that had net debt of $88,143 million at the end of September 2017. It has plans to reduce debt and has a target of achieving a net debt to adjusted earnings before interest, tax, depreciation and amortization (EBITDA) ratio of 2.5 in 2018, which was as high as 5.3 in 2015. The company’s divestment program of $21 billion throughout 2017-2018 is expected to support debt reduction. So far this year, this Brazilian state-run energy company has sold assets worth $4.5 billion.

Furthermore, Petrobras has plans to reduce its operating expenses to $136.8 billion from $153 billion projected in the five-year plan earlier. Also, operating cash generation is estimated to be around $141.5 billion, after dividends.  The company expects these initiatives to help in reducing its debt without drawing new funds.

About the Company

Headquartered in Rio de Janeiro, Petrobras is one of the largest integrated energy firms in Latin America. The company’s activities include exploration, exploitation and production of oil from reservoir wells, shale and other rocks as well as refining, processing, trading and transportation of oil and oil products, natural gas and other fluid hydrocarbons, besides other energy-related activities.  It mainly operates through six segments — Exploration and Production, Refining, Transportation and Marketing, Distribution, Gas and Power, and Biofuels and International.

We believe Petrobras’ cost improvement measures and divestment of non-core assets will likely help financials, thereby leading to earnings growth. However, the company has lost 1.1% of its value year to date against 8.7% growth of its industry.

Zacks Rank and Stocks to Consider

Petrobras has a Zacks Rank #3 (Hold).

Some better-ranked stocks in the oil and energy sector are Northern Oil and Gas, Inc. NOG, Holly Energy Partners, L.P. HEP and Delek US Holdings, Inc. DK.  All these companies sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Minnetonka, MN-based Northern Oil and Gas is an independent energy company. Its sales for the fourth quarter of 2017 are expected to grow 51.9% year over year. The company pulled off an average positive earnings surprise of 175% in the last four quarters.

Dallas, TX-based Holly Energy is a production pipeline company. Its sales for 2017 are expected to improve 10.4% year over year. The company came up with a positive earnings surprise of 57.1% in the third quarter of 2017.

Brentwood, TN-based Delek is an integrated energy company. Its sales for 2017 are expected to increase 44.7% year over year. The company delivered a positive earnings surprise of 19.1% in the third quarter of 2017.

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Petroleo Brasileiro S.A.- Petrobras (PBR) : Free Stock Analysis Report
 
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