It’s clear that 2020 has been an incredibly difficult time for oil companies. However, despite those difficulties, its also been a time for companies to test the strength of their established business improvements. Petrobras (NYSE: PBR) is still more than 80% below its 2007 highs, however, as we’ll see through this article, 2020 reveals the strength of the company’s businesses.

Petrobras begins production at P-68 FPSO in Berbigão field, Brazil

Petrobras – NS Energy

Petrobras Exploration & Production Highlights

Petrobras has seen some QoQ production growth highlighting the company’s potential.

Petrobras Production Growth – Petrobras Investor Presentation

Petrobras has grown its production 2% YoY and 5% QoQ, supported by growth in both the company’s oil and gas production segments. Especially, the company’s commercial oil and gas production has gone up, along with production in its hub Brazil. That growth shows a remarkable ability for the company to handle the downturn.

Especially supporting the company’s exploration & production is the company’s pre-salt oil growth. The massive Buzios oil field has reached 640 thousand barrels / day of oil production, and the company’s Tupi field is the world’s largest deepwater field hitting 2 billion barrels produced in 11 years. The company’s target is to continue growth of these massive projects.

Petrobras Cost Drops – Petrobras Investor Presentation

Petrobras has massive to drop costs significantly with a 43% drop in lifting cost in 1 year. The company has cut Brazil lifting costs from $7.9 / barrel to $4.5 / barrel. In all aspects of deepwater oil, the company’s rapid cost declines, especially in pre-salt, are helping its financial positioning to improve. This’ll drive additional shareholder rewards and cash flow.

Petrobras Production Growth

At the same time, Petrobras’ improving deepwater production has the ability to grow long-term production.

Petrobras Production – Petrobras Investor Presentation

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Petrobras has added 8 new units with 1.2 million barrels / day of production capacity and a number of producing wells for each unit. The company’s Buzios units have 100% of production capacity, and is starting gas exports through new routes. The company’s flare out and water injection will maintain production and potential growth.

The company expects 6 future production development projects across 12 units. To get an idea of the strength of these, its worth looking at the 8 new units above and how much they’ve supported the company.

Petrobras Downstream Businesses

The company’s downstream business helps to make Petrobras an integrated company and adds to the company’s potential. More so, it allows the company to capture margins at every step of the process. Despite continued COVID-19 related difficulties, the company is continuing to perform well here.

Petrobras Sales Volume and Exports – Petrobras Investor Presentation

Petrobras watched its sale volumes decline significantly due to COVID-19, from 1.8 million barrels / day to just under 1.5 million barrels /day in 2Q 2020. From there, however, they’ve recovered to 1.76 million barrels / day in 3Q 2020, just over 2% below where they were YoY. That sales volume decline highlights both the COVID-19 impacts and the company’s resiliency.

The company has also found new markets as its exports have remained strong. From 3Q 2019, exports have increased more than 20% YoY supported by rapid growth in oil growth and less modest growth on oil products. The company has focused on increased integration of its assets and refinery improvements so that there’s also less inventories.

Petrobras Oil By-Products – Petrobras Investor Presentation

In terms of oil by-products, Petrobras has seen its utilization factor recover significantly. The company’s by-products dropped significantly going into the 2Q 2020, but in 3Q 2020 have since improved YoY. That recovery in utilization factor comes with natural gas that’s nearly recovered significantly. It highlights the relative strength of the company’s business.

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Petrobras Financial Highlights

Overall, putting all of this together and the company’s recovery, its worth looking at the company’s financial highlights.

Petrobras Main Highlights – Petrobras Investor Presentation

Petrobras has revised its impressive production target for 2020 to 2.84 million barrels / day, with a variation of 1.5% either way. The company has continued to have resilient FCF and reduced its gross debt by a massive $11.6 billion QoQ. For a company worth less than $70 billion, this QoQ debt reduction highlights its raw financial strength.

The company has continued to repurchase global bonds, with a massive cash position, and continued cash inflow from divestments. The company has managed to issue new debt at a great rate. The company’s net debt has gone down $7 billion in the first 6 months of the year (roughly 10%). The company will be able to continue these improvements going for.

Once it has significantly paid down its debt, it’ll be able to drive much more significant shareholder rewards. Over the next 5 years, the company, which is continuing to paydown debt, can get a near 0 debt position. From then on, it’d be able to use its FCF to drive much more exciting and significant shareholder rewards. This highlights the company’s financial strength.

Petrobras Risk

Petrobras’ risk is the same as every other major oil company, its oil prices. However, its not just oil prices that matter its the company’s valuation relative to its peers. Petrobras has one of the lowest valuations relative to cash flow of major oil companies, mainly due to concerns about the company’s difficult history of corruption with the Brazilian government.

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However, despite these risks, Petrobras has the potential to continue driving substantial shareholder rewards.


Petrobras has an impressive portfolio of assets and its taken a number of intelligent steps to improve its market positioning in recent years and its financial positioning. Unfortunately, COVID-19 had to happen to prove that was the case for the company. However, now that it has, its clear that Petrobras is undervalued.

The company has managed to achieve strong FCF and its rapidly paying off its net debt, while issuing new debt at ever more exciting rates. The company has the ability to drive strong shareholder rewards for the long run, something we recommend investors pay close attention to. Overall, Petrobras is a valuable long-term investment opportunity.

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Disclosure: I am/we are long PBR. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.


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