The Brazilian oil company Petrobras has agreed on a non-prosecution settlement in the US relating to corruption charges. This has removed one of the overhangs that has plagued the company and the stock, down over 30% from highs earlier this year. Other factors are getting more favorable for the company. Oil prices are steadily climbing due to geopolitical issues for the year reaching $70/Barrel. Potential less market concern about the presidential election in Brazil.
Petrobras (PBR US), the embattled Brazilian oil company, has agreed to settle corruption probes in the U.S. The company agreed to pay $853.3m to U.S. and Brazilian authorities into year-long investigations into the corruption scandal that was unearthed in 2014. SEC and DOJ agreed on a non-prosecution agreements with the company. The settlement removes a large overhang for the company and the stock. WSJ writes;
For Petrobras, the uncertainty over legal repercussions eases considerably with the deal, though analysts caution that there are still lawsuits pending in Brazil and the Netherlands and an arbitration process in Argentina. In the meantime, the company’s new management has returned Petrobras to profitability and is working to reduce its mountain of debt, aided by rising oil prices.
“It’s a new story now. Petrobras is living a new phase,” said Raphael Figueiredo, an analyst at Eleven Financial Research in São Paulo, adding that the deal “opens up new opportunities.”
The stock has been hammered this year, down over 30% due to general economic downturn in the Brazilian economy and various strikes. Forbes elaborates
The unpopular president of Brazil, Michel Temer, raised diesel fuel prices last month, leading to a semi-disastrous trucker’s strike that lasted nearly two weeks. To end the strike, Temer promised a 60-day price fixing for fuel. It is unclear how much longer Petrobras will put a lid on diesel and gasoline prices for consumers.
Furthermore, the uncertainty with the upcoming presidential election has also hit the stock price. Markets have been worried that various candidates might force the company to cap prices and take on non-profitable projects. This overhang seem to slowly dissipate. Earlier this month the left presidential candidate Fernando Haddad said that he would allow Petrobras to set prices above cost. Reuters’ quotes;
“I’m against using Petrobras to combat inflation. Petrobras is a company, it has shareholders,” said Haddad, speaking to a group of foreign correspondents.
The company recently stated that they will continue with plans to build oil-platforms regardless who becomes the next President, a sign they feel comfortable about its future. Morgan Stanley analyst Simon Weaver said earlier that fundamentals are better than they have been in previous years.
Oil prices are hovering at highs around $70/barrel due to various macro and geopolitical concerns mainly in the middle-east. Petrobras with all its production based in Brazil could benefit from further uncertainty and global turmoil, especially as its own domestic overhangs might get reduced.