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Petrobras' Suspension of SBM Deal Can Lower Profit by $15B

Zacks Equity Research

Petroleo Brasileiro SA or Petrobras (PBR) apprehends a roughly $15.0 billion decrease in its profits between 2014 and 2018. The profits of this Brazilian energy giant will shrink if it is obliged to suspend the oil platform deal with SBM Offshore − a marine service provider in Holland.

The obligation might stem from SBM Offshore’s suspected payment of roughly $250.0 million as bribes in Africa and South America and $139.0 million in Brazil. The payments are currently the subject matter of investigation in Brazil, the U.S and the Netherlands.   

Petrobras added that its production of oil and natural gas will be significantly reduced if it stops utilizing the floating oil production platforms of SBM Offshore – one of the largest leaser of floating production, storage and offloading (:FPSO) vessels in the world.

Headquartered in Rio de Janeiro, Petrobras is the largest integrated energy firm in Brazil. The company’s activities include exploration, exploitation and production of oil from reservoir wells, shale and other rocks. The company also engages in the refining, processing, trading and transportation of oil and oil products, natural gas and other fluid hydrocarbons, in addition to other energy-related activities.  

However, the Brazilian government, the company’s majority shareholder, has a history of political interference in Petrobras’ affairs. We do not expect this situation to change in the short term. This may impact the company’s performance, since interests of the government might not coincide with that of minority shareholders.

As a result, Petrobras currently has a Zacks Rank #3 (Hold), implying that it is expected to perform in line with the broader U.S. equity market over the next one to three months.

Meanwhile, one can consider better-ranked players in the energy sector like QEP Resources Inc. (QEP), Pembina Pipeline Corporation (PBA) and TC PipeLines LP (TCP). All these stocks sport a Zacks Rank #1 (Strong Buy).

Read the Full Research Report on PBR
Read the Full Research Report on QEP
Read the Full Research Report on TCP
Read the Full Research Report on PBA

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