Petrobras shares fell at the beginning of the week as investors worry the policies of recently installed President Lula da Silva could erode the profitability of the state-owned oil major.
Investors and the Brazilian government alike enjoyed big paydays in 2022 as the Petrobras board approved the payout of big dividends last year. But now, Brasilia may decide to cut dividends in order to start subsidizing fuels again. The move could mark the return to the policies of 2011-2014 when the Dilma Rousseff-led government tried to shield Brazilians from soaring global crude prices by implementing a generous fuel-subsidy policy through Petrobras. The fuel subsidies and the subsequent plunge in oil prices after 2014 turned Petrobras into the most indebted company in the world.
Will things be different this time around?
Most experts already expected a change in company policy under the new Lula government. The 77-year-old President had campaigned with the promise to make Petrobras a greener company and has put forward ex-senator Jean-Paul Prates as the new CEO of Petrobras. Prates, during his time as a senator, has proposed several bills to create a regulatory framework for the installation of offshore wind and carbon capture, the former of which could actually turn out to be a profitable business for Petrobras, given the company’s extensive experience in offshore operations. Related: Oil Rebounds On Smaller Than Expected Crude Build
Under President Bolsonaro, Petrobras had started an asset divestiture program, through which the company was putting up non-core shallow-water fields and refining assets for sale in order to reduce its debt. Lula’s government was already expected to halt the sale of, especially refining assets, and on March 1, 2023, the government asked Petrobras to suspend all asset sales for 90 days while the Energy Ministry is revising the national energy policy. The market expects the Lula government to prevent further sales of refining assets and to prevent the slimming down of the company in general.
Analysts have warned that the company’s focus on deepwater pre-salt assets could be highly profitable in the 2020s but carries long-term risk as the company could become less diversified and hence more vulnerable to extreme movements in global crude prices.
Regardless of Lula’s long-term plans for Petrobras, he will not want to make radical changes to the company’s pre-salt production strategy, which represents 73% of its total production, and generates the lion's share of its income.
Petrobras is set to report Q4 and 2022 full-year earnings after markets close today.
By Tom Kool for Oilprice.com
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