Petrobras Rises to Most Since February as Luna Takes the Reins

Brazilian state-controlled oil giant Petrobras rose to the highest in three months after posting a profit and slashing debt in the first quarter, boosting optimism for dividend payments under the company’s new chief executive officer.

Dividends “may be around the corner” as the firm rapidly cuts debt, Credit Suisse said in a note to clients after the results. Debt reduction remains the main priority as a step to increase shareholder payouts, Petrobras Chief Financial Officer Rodrigo Araujo Alves said on a conference call Friday.

Petrobras Rises to Most Since February as Luna Takes the Reins

Petrobras is set to rake in 57.2 billion reais ($10.8 billion) this year, according to an average estimate of 12 analysts compiled by Bloomberg, which would be the most on record in local currency and the most since 2012 in dollars. The deep-water specialist has benefited from this year’s crude rally and plummeting expenditures as it unloads older and less efficient oil fields to focus on the so-called pre-salt, the biggest group of offshore discoveries this century.

“We are a recognized world leader,” CEO Joaquim Silva e Luna said at the start of the conference call. “Petrobras will extract more, from now on, than it has in all its history.” Luna, a former army general, took the reins last month after Brazilian President Jair Bolsonaro ousted Roberto Castello Branco from the top spot in a clash over fuel-price hikes.

Petrobras Rises to Most Since February as Luna Takes the Reins

Shares rose as much as 4.4% to 26.10 reais on Friday, the highest since Feb. 19. The gains erased a significant part of the losses caused by the tumultuous management change, which created fears the company would start losing money with fuel subsidies. Petrobras is still down 8% for the year to date.

Petrobras Keeping Course for Now With New CEO: Company Outlook

The shutdown of the Colonial oil products in the U.S. earlier this week due to a ransomware attack could provide unexpected support for Petrobras in the near term because the company will be able to build up cheap inventories of gasoline and diesel from the Gulf Coast, according to Bloomberg Intelligence. It also relieves pressure on Petrobras to adjust fuel prices higher in the short term. Though Colonial has since restarted, it was operating at reduced rates as of Thursday.

Petrobras Rises to Most Since February as Luna Takes the Reins

Petrobras’s profits would have been even higher earlier this decade, but the left-wing administration of President Dilma Rousseff pressured Petrobras into subsidizing diesel and gasoline to contain inflation. Bolsonaro has spooked investors with signals that he could do the same thing. Claudio Mastella, the company’s head of marketing, said on the Friday call that it doesn’t plan any changes to its current pricing policy.

CEO Luna “hasn’t had his hand forced yet,” said Fernando Valle, an analyst at Bloomberg Intelligence. “The big test is if we get to $75 to $80 a barrel and the currency tanks,” which would result in pressure from truck drivers and the public for relief at the pump. Brent crude oil traded at $68.42 at 11:55 am New York time on Friday.

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