One of Brazil's largest companies celebrates a round anniversary in 2023. It is the 70th anniversary of the founding of Petroleo Brasileiro, or Petrobras for short. In 1953, the then President of the Republic, Getulio Vargas, signed Law No. 2,004. Under the motto "Oil is ours" a state-controlled multinational was created: Petrobras was given a monopoly over all stages of the oil industry, with the exception of distribution. Seventy years later, the company claims to be one of the world's largest oil and gas producers. Petrobras has also been active offshore since the 1970s. Among other things, the company pumps oil and gas off the Brazilian coast from the Campos Basin, which is up to 2,400 meters deep. In 2022 alone, Petrobras commissioned 14 new drilling sites in the area. This is one of the reasons why the Brazilian company's proven reserves have grown to 10.5 billion barrels of oil equivalent (BOE). In purely mathematical terms, this would mean production capacity utilization for more than twelve years.
CEO Jean Paul Prates is not satisfied with this. In the period 2023 to 2027, he plans to spend a total of USD 78 billion on capital, 83% of which will go into the exploration and production of oil and gas (see chart). Of course, Petrobras cannot escape the global energy transition or the fight against climate change. USD 4.4 billion or 6% of the planned capital expenditure is directly linked to the group's decarbonization initiatives, according to management. Already, Petrobras is embracing comparatively climate-friendly oil production. Thanks to its focus on deepwater production, its per barrel greenhouse gas emissions are 70% below the global average. Similar to many of its competitors, Petrobras is also investing in renewable energy sources. In September, the company submitted an application to the environmental authority to license ten offshore wind farms. The plants planned along the coast of the South American country would add up to a total of 23 gigawatts (GW) of electricity production capacity. "We are preparing the company to become the largest developer of wind energy projects in Brazil," the CEO enthused.
Shortly before, Petrobras had already announced that it would enter into the development of the most powerful wind turbine ever built in Brazil. For this purpose, the company entered into a partnership with engine builder WEG. The oil multinational wants to invest the equivalent of USD 26.8 million in the seven-megawatt onshore wind turbine over a period of 25 months. Series production for the 220-meter-high turbines is scheduled to start in 2025. The company's recent growth is helping it to make the huge investments in its core business and new technology fields. In 2022, the Group increased its operating profit (adjusted Ebitda level) by more than half to USD 66.2 billion. Petrobras generated a cash inflow of almost USD 50 billion from its operating business, which meant that cash flow was almost a third higher than in 2021. In addition to the higher oil price, improved margins in the refinery business paid off. Investors will find out how the business has developed recently on November 10. That's when CEO Prates presents the interim report for the third quarter of 2023.
In any case, on the stock market Petrobras has been one of the outperformers so far this year. The ADR, which is listed in New York, has risen in price by more than a third compared with its level at the end of 2022. Most recently, however, the share has once again bounced off the horizontal resistance in the area of USD 15/16. Even if Petrobras still fails to clear this hurdle, the new Softcallable Barrier Reverse Convertible (BRC) offers an interesting yield opportunity. Leonteq is launching two variants of the popular structure: In the product currency CHF, the Petrobras-based BRC pays a coupon of 12% p.a. every three months. In the USD-denominated counterpart, the payout is 300 basis points p.a. higher. Otherwise, the terms and conditions are identical. The barrier is 59% of the initial level. As long as the Petrobras ADR does not fall to or below this level during the maximum term of 18 months, nothing stands in the way of the maximum return. If, on the other hand, the barrier is breached, the partial protection expires. The underlying would then have to turn sharply upward and end the term at or above the strike in order to avoid markdowns. Otherwise, there will be a physical delivery of the underlying. Please also note the soft callable feature. It allows the issuer to call and redeem the BRC early.
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