Gasoline and diesel prices kept low in short, medium term may reduce cash generation and profit distribution
08/01/2023
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Petrobras unveiled new dividend policy with lower payment percentages — Foto: Leo Pinheiro/Valor
The current lag in the prices of fuels in Petrobras’ refineries, if maintained in the short and medium term, could reduce even more the shareholder compensation. The projection is justified, according to experts, since gasoline and diesel prices kept low would lead to a lower cash generation than that which could be obtained with prices in line with the international market. On Friday, the oil company announced a new dividend policy, with lower payment percentages. The new rule provides for the distribution of 45% of free cash flow (the difference between operating cash flow and investments). By the previous policy, this percentage was 60%.
Petrobras said in a statement on Monday that it follows closely the developments in the international market and the impacts on Brazil that resulted in the increase in oil prices. In recent weeks, the benchmark price of oil has risen, boosted by the prospect of greater global economic activity and lower fuel stocks. This situation pressures Petrobras for hikes in domestic prices. Brent-type oil closed on Monday at $85.43, up 1.21%. The appreciation of the real has not been enough to offset the high of the barrel.
Consultancy Stone X estimates that the prices charged by Petrobras for diesel, in refineries, are 23.9% below international prices, or R$0.73 per liter. For gasoline, the consultancy sees the gap at 15.1%, or R $0.38 per liter. The Brazilian Infrastructure Center (CBIE) and the Brazilian Association of Fuel Importers (Abicom) also see potential for price increases for the two products.
Petrobras also pointed out that the moment is of great uncertainty regarding the recovery of the global economy, which directly affects the demand for energy, and is reflected in the increase in volatility and reference prices.
“The company reiterates that the adjustments in product prices are made in the normal course of its business, due to the continuous monitoring of the markets, which includes, among other procedures, analysis of competitive prices by sales region, in balance with the national and international markets, taking into account the best alternative accessible to customers. Any adjustments, when necessary, will be carried out supported by technical and independent analyses,” said Petrobras.
Consultancy hEDGEpoint said in a report that the higher oil price and the fall in inventories in the United States influence the refining margins of gasoline, the so-called “crack spread” (difference between the price of the product and crude oil), reaching the highest value for the time in the last five years.
UBS BB said that one of the points of attention, after Petrobras changes its dividend policy, will be the company’s ability to increase fuel prices. “The impact [of the lag] is still small. At this time, it does not compromise significantly [the distribution of dividends],” said Luiz Carvalho, an analyst at UBS BB. A problem emerges when the company keeps prices low for a long time.
JPMorgan sees the sale of fuels below parity prices as a risk in the face of the possibility that the company subsidizes the domestic market, as in the past. Ilan Arbetman, an analyst at Ativa Investimentos, said that, in general terms, lower prices produce narrower margins in refining. Although it is relevant, the weight of refining in the company’s results impacts less than the exploration & production segment, he said.
“The refining sector is very large, but the result is much more influenced by upstream [exploration and production],” said Mr. Arbetman. He points out that there is a large influx of Russian fuel into Brazil, directly or through Chinese or Indian suppliers, which helps cushion any price impact. “There is an increase in the flow of fuel from Russia to Brazil,” the state-owned company confirms. At war with Ukraine, Russia is under economic sanctions imposed by Western countries, especially Europeans, which leads the Russians to sell oil products on the foreign market at a discount.
In the case of dividends, in addition to the delay, another factor that may influence the distribution to shareholders is the future investment of Petrobras. Among the doubts is the return of the state-run company to the distribution segment, which would require capital injection, and a possible exercise of the right of first refusal in the purchase of Novonor’s slice in Braskem, said UBS BB. In Petrobras’ current business plan for the period 2023-2027, the goal is to invest $78 billion. The state-owned company has come under fire from the government for paying high dividends to shareholders, despite the fact that the federal government is one of the biggest beneficiaries. Critics say that paying shareholders less would leave more money for investment.
Last Friday, Petrobras also said that it may carry out share buybacks. BTG Pactual expressed doubts about the amount and type of shares that could be involved in a possible buyback.
*Por Fábio Couto, Kariny Leal — Rio de Janeiro
Source: Valor International