Brazil’s Petrobras boosts payouts and spending under new plan – analysts

 (Reuters) – Brazilian state-run oil company Petrobras loosened its dividend policy and raised capital spending projections in a new five-year strategic plan unveiled late on Wednesday that was cheered by analysts and investors.

In a securities filing, Petroleo Brasileiro SA (PETR4.SA), as the company is formally known, said it was ending its previous dividend policy, which had effectively banned extraordinary dividend payments for years, now that it had brought its gross debt under $60 billion as planned.

Under its new plan, as long as gross debt remains under $65 billion and the company makes a profit, it will pay out 60% of the difference between its operating cash flow and investment every quarter.

It also set a minimum annual dividend payout of $4 billion during years when Brent crude averages more than $40 a barrel, regardless of its debt levels.

Preferred shares in the company listed in Brazil were up 3% by 1510 GMT, outperforming the country’s benchmark Bovespa equities index (.BVSP), which was 1.3% higher.

For the five-period covered by the plan – 2022 through 2026 – Petrobras said it expected to distribute $60 billion to $70 billion in total dividends.

Credit Suisse analysts Regis Cardoso and Marcelo Gumiero wrote in a note to investors that given the company’s current market value of about $67 billion, shareholders would “get their money back” in five years if Brent averaged $61 a barrel.

Also in the company’s new business plan, Petrobras said it expected to invest $68 billion, a sharp increase from $55 billion under its old five-year plan, as it seeks to boost oil production in Brazil’s offshore pre-salt area.

Petrobras discovered oil in the area, which is trapped below a thick layer of salt, in 2006, and it has become the center of the company’s exploration and production operations in recent years. read more

The company, which has so far mainly paid lip service to emissions concerns, said it would dedicate $1.8 billion toward decarbonization efforts under the new plan. It said its decarbonization projects would include eliminating gas flaring and electrifying its offshore platforms.

Analysts at Brazil’s Banco BTG Pactual said on balance the new plan was positive for investors but they questioned the company’s capital expenditure (capex) mix.

They said the profitable exploration and production division would not get a proportionate boost in new spending while the percentage of capex going to its less profitable refining business would rise to 9% from 7% under the old plan.

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