Petroleo Brasileiro S.A. aka Petrobras (PBR - Free Report) aims to become the best value-generating energy company by executing its strategy to boost growth of its business and maximize returns to its shareholders over the next five-year period. To this end, the company has plans in place for achieving the target. By dint of this, the energy player intends to provide people with safety, debt reduction and value creation.
Details of the Plan
Petrobras’ new five-year (2020-2024) investment budget will comprise five strategies as follows:
i) achieving greater return on capital, ii) lowering the cost of capital, iii) minimizing costs, iv) meritocracy and v) addressing environmental concerns
Petrobras, which focuses on emerging as a company with higher operating return than its capital cost, targets to attain 1.5x Net Debt / LTM EBITDA ratio by 2020. It further plans to reduce its gross debt to $60 billion by 2021, which in turn, will help the company raise its shareholder remuneration.
Petrobras is committed to investing in deepwater and ultra-deepwater assets, especially pre-salt, which is likely to rake in maximum moolah. The company’s five-year capital expenditure, of which 85% is allocated to the E&P segment is projected to be $75.7 billion.
Planned divestitures ranging from $20 billion to $30 billion during the 2020-2024 period will reach its maximum level in 2020 and 2021.
Oil and Gas Production Estimates
The company’s estimated oil and gas production curve depicts continuous growth for the five-year span of 2020-2024. This Brazilian oil major promises to boost average production in 2020 to an expected 2.7 million barrels of oil equivalent per day with output surging to 3.5 million barrels of oil equivalent per day by 2024.
The growth trajectory for the long term is backed by the new production practices, primarily in the pre-salt basin. Further, stable output from the Campos Basin will fuel growth.
Financial Standing and Debt-Reduction Targets
In the next five years, active portfolio management along with cost curbs and improved efficiency will help the company generate a sizable operating cash to enable it to cut back its gross debt and interest expenses. Expecting a hefty operating cash flow from divestment of assets, this integrated energy player will be able to reduce its debt burden and make new investments without the aid of new net funding. This combination of improved debts and impressive assets augurs well for the near term.
Moreover, the company's new Dividend Policy looks to hike dividends to add greater shareholder value.
Decarbonization and Sustainability Goals
Headquartered in Rio de Janeiro, Petrobras to date is committed to lower carbon footprint by reducing flare natural gas flaring, CO2 reinjection and bettering energy efficiency gains. In this regard, the company recently drafted a slew of 10 effective plans which mainly revolve around ceasing absolute operating emissions and routine flare flaring by 2025 and 2030, respectively. Additionally, it focuses on decreasing carbon intensity and methane emissions by 2025.
The five-year scheme will allow Petrobras to take a step forward in becoming more financially healthy and shareholder-friendly.
Zacks Rank & Key Picks
Petrobras currently carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the energy space are World Fuel Services Corporation (INT - Free Report) , HollyFrontier Corporation (HFC - Free Report) and Phillips 66 (PSX - Free Report) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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