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Petrobras Plans Dividend Squeeze To Fund Transition to Renewables

Brazil's state-owned energy heavyweight Petrobras will be distributing more modest dividends in the future as it prepares to become a renewable energy company.

That's according to chief executive Jean Paul Prates, who spoke to Bloomberg and said that plans are to have half of Petrobras's revenues coming from wind and solar power generation and renewable fuels in ten years.

Prates told Bloomberg he believed shareholders "will understand," explaining that "I would be more conservative than aggressive. We are in the middle of this great decision of becoming an oil company in transition." The top executive made a point of noting that there will be no "drastic turns" in the company's strategy. However, going from 100% revenues from oil to 50% from wind and solar in ten years sounds quite drastic.

Petrobras's stock was down on the day the interview was released. Over the past six months, however, the shares have been rising more or less smoothly. In this period, the company has indicated it had growth plans for its core oil and gas business, including higher spending and international expansion. Related: Utility Scale Solar Installations Saw Largest Jump Ever Last Year

In November last year, for instance, Prates announced Petrobras's next five-year plan, which featured a 31% increase in planned investments to $102 billion. Of that, 72% was earmarked for oil and gas investment with a view to boosting the company's oil and gas output to 3.2 million barrels of oil equivalent daily from 2.8 million barrels of oil equivalent currently.

Also last year, Petrobras indicated it was planning to start buying oil assets-after ten years of divestments as the company sought to reduce its huge debt pile. In May 2023, that pile had shrunk to $53.3 billion, which made the company comfortable enough to return to the asset acquisition game.

Earlier this month, the company said it was looking to invest some $100 billion in offshore oil production expansion by the end of the decade.

"We need to keep the core [business] very safe . . . We are not doing [a] crazy transition," the company's chief executive told the Financial Times, commenting on the recently announced strategic plan through 2028.

Against this background, the latest plans as shared with Bloomberg might seem a little surprising, especially as Prates also told the publication that he planned to start making acquisitions in the wind and solar space as early as this year "to propel the shift" to transition-friendly energy, per Bloomberg.

Interestingly, Prates is announcing transition plans soon after two international supermajors that tried to have a fast transition ended up pivoting back to their core business after their transition efforts were revealed to be returning sub-par profits. BP's case was especially notable because its shift to wind, solar, and EV infrastructure was more ambitious.

BP's shares took a dive after then-CEO Bernard Looney announced the shift back in 2020 as shareholders took a cautious stance on these ambitions.

As it turned out, they were right to be cautious as the shift failed to produce the expected returns, and BP adjusted its plans to regain a focus on oil and gas production and trade. Shell did the same, although its transition strategy was a little less ambitious.

Despite these recent examples, the chief executive of Petrobras appears confident that shareholders would be fine with smaller dividends in the name of the transition to wind, solar, and renewable fuels.

This might indeed be true for a certain class of investors whose priority is so-called impact investment and whose size of returns is not that important. There have been indications recently, however, that this class is a rather small one, with most investors still preferring money over environmental benefits.

By Irina Slav for Oilprice.com

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Irina Slav

Irina is a writer for Oilprice.com with over a decade of experience writing on the oil and gas industry. More