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Brazil's state-run integrated energy firm Petroleo Brasileiro S.A., or Petrobras (PBR - Analyst Report) has announced a $236.7 billion capital spending plan for the period 2013-2017, which remains almost the same as its investment plan issued last year for 2012-2016.

For exploration and production activities, Petrobras has increased its planned investment by 4% to roughly $147.5 billion, which comprises 62% of the company’s total investment budget.  

In order to support the increased investment for upstream operations, Petrobras has reduced its planned investment for refining operations by 1.1% to around $64.8 billion. Petrobras also intends to lower its expenditure for natural gas and energy projects by 28% to $9.9 billion.

Petrobras expects liquid and gas production in Brazil by 2020 to be roughly 5.2 million barrels of oil equivalent a day, the same as forecast in 2012.

Management has not yet given an outlook for its production outside Brazil, but noted that Petrobras has a plan to assign roughly $3.2 billion to invest abroad over the period of 2013-2017, 90% of which will be allocated for exploration and production activities.

Headquartered in Rio de Janeiro, Petrobras is the largest energy firm in Brazil and one of the largest in Latin America. Petrobras’ activities include the exploration, exploitation and production of oil from reservoir wells, shale and other rocks, and refining, processing, trade and transport of oil and oil products, natural gas and other fluid hydrocarbons, in addition to other energy-related activities.  

Brazil is expected to be among the world’s four largest oil producers this decade due to the country’s huge offshore crude discoveries. Petrobras is thus expected to strengthen its operations from these new discoveries and grow its earnings significantly in the near future.

On the flip side, the Brazilian government, the company’s majority shareholder, has a history of political interference in Petrobras’ affairs. We do not expect this situation to change in the short- to medium-term. This may impact the company’s performance, since interests of the government might not coincide with those of minority shareholders.

Petrobras currently retains a Zacks Rank #3 (Hold), implying that it is expected to perform in line with the broader U.S. equity market over the next one to three months.

In the energy sector, Helmerich & Payne Inc (HP - Analyst Report),  Range Resources Corporation (RRC - Analyst Report) and Calumet Specialty Products Partners LP (CLMT - Snapshot Report) display better fundamentals and currently carry a Zacks Rank #1 (Strong Buy).      

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