On Apr 11, 2014, we issued an updated research report on
Petroleo Brasileiro SA or Petrobras
). Petrobras - the largest publicly-traded Latin American oil
company − produces and refines almost the entire crude oil and
natural gas of Brazil. However, we are concerned about Petrobras'
declining production trend.
In the 2030 Strategic Plan, Petrobras − a Zacks Rank #3 (Hold)
stock − revealed its ambition to place itself among the top five
integrated oil firms in the world by 2030. To support it, the
company aims to increase daily oil production to 4.0 million
barrels of oil per day (MMbpd) from 2020.
We appreciate the company's initiative to cut operating expenses
through a cost optimization program which helped Petrobras slash
operating costs considerably in 2013.
Petrobras has divested several non-core assets since the
restructuring of its divestment program in 2012. The sales
reflect the company's intention to focus on properties that have
greater potential to generate cash flow for its shareholders.
However, in 2006, Petrobras bought a refinery after paying
considerably more than its actual worth. Notably, the company is
justifying the buy stating that the refinery was bought judging
the best interest of shareholders but the recession prevented the
company from reaping the desired profits from the refinery.
Moreover, the Brazilian government, which is a majority
shareholder in Petrobras, has interfered in Petrobras' affairs,
time and again. We do not expect any turnaround in this situation
in the short- to medium-term. Consequently, this may impact the
company's performance since government interest might not
coincide with that of minority shareholders.
Stocks That Warrant a Look
One can consider better-ranked players in the energy sector like
Range Resources Corp.
Helmerich & Payne Inc.
Pioneer Energy Services Corp.
). These stocks all sport a Zacks Rank #1 (Strong Buy).
HELMERICH&PAYNE (HP): Free Stock Analysis
PETROBRAS-ADR C (PBR): Free Stock Analysis
PIONEER EGY SVC (PES): Free Stock Analysis
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