The involvement of Petroleo Brasileiro S.A. or Petrobras PBR in a multi-billion dollar money laundering scandal is not a secret any more. As per Brazil’s audit court, Petrobras has faced monetary losses as high as $7.6 billion as the company’s officials offered contracts to a cartel of suppliers at much higher prices in return for bribe.
It is to be noted that the refining unit of Petrobras had witnessed 17% overpricing according to the audit court. Most importantly, the events paralyzed the overall economy of Brazil.
Headquartered in Rio de Janeiro, Petrobras is the largest integrated energy firm in Brazil and one of the largest in Latin America. The company’s activities include exploration, exploitation and production of oil from reservoir wells, shale and other rocks, as well as refining, processing, trading and transportation of oil and oil products, natural gas and other fluid hydrocarbons, in addition to other energy-related activities.
The company recently decided to lower its 2015 capital spending from $28 billion to $25 billion. For 2016, the company’s spending plan has been cut from $27 billion to $19 billion. Considering both years, the debt-laden company has lowered its future capital investment by $11 billion. We believe that this spending cut will help the company in clearing its debts to a certain extent.
However, Petrobras’ upstream operations continue to face the challenges of weak crude prices. Despite an increase in production volume, the third-quarter upstream segment earnings resulted in a year-over-year decline of over 81% owing to a sharp fall in commodity prices.
As a result, Petrobras currently carries a Zacks Rank #3 (Hold), implying that the stock will perform in line with the broader U.S. equity market over the next one to three months.
Meanwhile, some better-ranked players in the energy sector are Energy Transfer Equity, L.P. ETE, Boardwalk Pipeline Partners, LP BWP and Murphy USA Inc. MUSA. Each of these stocks sports a Zacks Rank #1 (Strong Buy).
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