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Petrobras to Cut Costs and Rev Up Divestments to Deleverage

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Despite being scarred by a multibillion-dollar corruption scandal and huge debt burden, it seems that Petrobras’ (PBR - Free Report) committed efforts to improve operational efficiency and financials are paying off well. Shares of the Brazilian oil giant moved up 5.94% yesterday to close the session at $15.87, after the company approved its Resilience Plan (from 2019 to 2023) to maximize its shareholders’ value.

Per the plan, Petrobras plans to slash operating expenses by $8.1 billion for its five-year plan through 2023. The original estimate for the same was $122.6 billion. The cost control will be aided by layoffs, lower advertisement/sponsorship costs, digital transformation and other practices. The state-owned company plans to expand its divestment plan of $26.9 billion to further trim its debt load, streamline portfolio and sharpen its focus on other profitable segments for achieving top-tier results. As such, Petrobras will be jettisoning more non-core downstream and midstream assets, along with stakes in some mature oil and gas fields.

One cannot deny that the company had been making serious efforts to trim its leverage metrics from 51% in 2017 to 49% in 2018. In 2018, Petrobras registered its first annual profit in five years, reflecting the firm’s cost discipline, as well as reduction in debt and interest payments. On a further encouraging note, Petrobras’ rating recently got upgraded owing to improved liquidity.

While the Zacks Rank #3 (Hold) company is pursuing aggressive divestment and cost containment initiatives, its investment program for the five-year period ending 2023 remains unchanged, with the only exception being the postponement of the installation of fifth production platform at the Buzios pre-salt field by a year to 2022. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Petrobras forecasts 2019 oil and gas production to be around 2.83 million barrels of oil equivalent per day (Boe/d) compared with 2.63 Boe/d in 2018. Boasting a lucrative portfolio, particularly in Brazil’s pre-salt reservoirs that lie below Espírito Santo, Campos and Santos basins in deep and ultra-deep water, Petrobras intends to sharpen its focus on these exploration areas. The company is entering into various strategic partnerships with foreign oil giants to drive exploration momentum. In this regard, it has also inked deals with major players like TOTAL S.A. (TOT - Free Report) , Royal Dutch Shell plc (RDS.A - Free Report) and Equinor ASA (EQNR - Free Report) .

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