Brazil’s state-controlled oil giant Petrobras sneezed at the end of last week, and the domestic stock market caught a cold.
Despite returning to a profit for the second quarter of the year, Petrobras dashed hopes of an extraordinary dividend for this year amid lower oil prices and higher investments into production expansion.
Following the earnings call, Petrobras shares plunged by 7% on Brazil’s stock market on Friday, dragging the main Ibovespa Brasil Sao Paulo Stock Exchange Index down 0.45% for the day, due to the considerable weight of the oil giant in the index.
Brazil’s stock market remains tethered to the performance of several major companies, most of all Petrobras, so when the oil giant disappoints investors, the whole market sags.
Petrobras actually reported a net profit for the second quarter of the year, of $4.7 billion, compared to a loss of $480 million for the same period last year.
However, chief financial officer Fernando Melgarejo warned on the earnings call that “Although we would very much like to have the excess cash to make an extraordinary payment, we see a low probability this year.”
That’s because lower oil prices this year dragged down revenues, while capex on boosting production grew, as did net debt.
Petrobras dividends for the second quarter would be about $1.6 billion, lower than the $2.2 billion dividend payout expected by an average analyst forecast reviewed by Bloomberg.
The Brazilian oil giant has vowed to increase oil and gas production and is spending a lot on this goal. But it has chosen to contain dividend payouts – not capex – which disappointed investors and the markets.
Petrobras’ capex for the first half of the year jumped to $8.5 billion, up by 32% from a year earlier. Second-quarter capex rose to $4.4 billion, a 9% increase from the first quarter of 2025.
Petrobras’ net debt jumped by 27% from June 30, 2024 to $58.56 billion as of June 30 this year. At the same time, free cash flow for the second quarter slumped by 44% from Q2 last year and by 24% compared to the first quarter.
But Petrobras continues to implement its multi-year strategic plan to boost production and appears to be sacrificing dividends as it pursues policies supported by the Brazilian government.
Raising oil and gas production is a priority for Brazil, the government of Luiz Inácio Lula da Silva has acknowledged, despite the goals to reduce emissions.
Lula and other top Brazilian officials argue that emissions reductions and net zero would need a lot of investment, part of which could come from Brazil’s proceeds from oil and gas sales.
Petrobras achieved a new record for operated production at 4.19 million barrels of oil equivalent per day (boed) for the second quarter, thanks to the ramp-up of several major FPSOs in Brazil’s pre-salt fields and the start-up of new wells in the Campos and Santos basins.
Petrobras is even looking to drill in an environmentally sensitive area near the mouth of the Amazon, and is set to receive authorization to do so as early as this week, CEO Magda Chambriard said last week.
The company plans to raise its oil and gas exploration and production and has earmarked billions of U.S. dollars of capex over the next few years.
Petrobras’ investment plan for the five years to 2029 stands at $111 billion. Of this, $77 billion is earmarked for oil and gas exploration and production activities.
Expectations from major forecasters, including OPEC and the IEA, are that Brazil will lead non-OPEC+ oil output growth this decade, alongside the U.S.
However, the higher capex and net debt of Brazil’s Petrobras and the dividend disappointment from the state oil firm will weigh in the short term on the shares of the company and on the Brazilian stock market.
Credit: Oilprice.com
