Brazil's state-run energy giant, Petroleo Brasileiro S.A. or Petrobras (PBR) announced that it has signed an agreement with the Bolivian state owned petrol company, YPFB, to settle interpretation differences regarding the Bolivian natural gas supply agreement. Petrobras is expected to pay $434 million for settlement of the dispute.
Moreover, under this new agreement, Petrobras will receive supply of natural gas for the power plant at Cuiaba, till Dec 2016. Petrobras expects this new agreement to have a $268 million negative impact on its third-quarter 2014 results. However, the company expects $128 million positive effect on its full-year results.
Additionally, Petrobras received preferential rights to the natural gas it discovers in Bolivia though its own exploration programs. The company anticipates the agreement to have a favorable impact on both parties.
The current take-or-pay contract will end on 2019 and both the parties are working on a new agreement for the supply of the 30 million cubic meters/day of Bolivian natural gas.
Headquartered in Rio de Janeiro, Petrobras is the largest integrated energy firm in Brazil and one of the premier ones in Latin America. However, the company has not fared well in the past few quarters in terms of earnings results. Petrobras has a negative earnings surprise of 19.51% for the trailing four quarters.
Currently, Petrobras has a Zacks Rank #3 (Hold), implying that it is expected to perform in line with the broader U.S. market in the next one to three months.
Meanwhile, one can consider better-ranked players from the broader energy sector like Sunoco Logistics Partners L.P. (SXL), Patterson-UTI Energy Inc. (PTEN) and Cameron International Corporation (CAM). All these stocks sport a Zacks Rank #1 (Strong Buy).
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