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Is Petrobras (PBR) Poised to Benefit from MoU with CNPC?

Brazilian state-run integrated energy company Petróleo Brasileiro S.A. or Petrobras PBR recently announced that it has signed a Memorandum of Understanding (“MoU”) with state-owned China National Petroleum Corporation or CNPC – the majority owner of Chinese oil and gas giant PetroChina Company Limited PTR –  for a strategic partnership.

The MoU will enable the companies to combine their skillset and assess business opportunities in Brazil and other countries. It will give the companies the chance to reshape all parts of their supply chain, incorporating their investment structures.

The partnership will increase CNPC's interest in advancing with its activities in Brazil. We would like to remind investors that the two companies are partners since 2013 and have been operating in the Libra area of the Santos Basin in pre-salt layer.

The partnership is in line with Petrobras' Business and Management Plan of 2017-2021, which emphasizes on development of deep-water production. It will help Petrobras, presently struggling with a money-laundering scandal, to share business risks. It will also increase the investment capacity for both the companies as well as improve their corporate governance. Exchange of technology, another feature of the MOU, will help both Petrobras and CNPC with their oil and gas supply chain.

As per Petrobras’ partnerships and divestment strategy, their third party investments will surpass $40 billion in the next 10 years.

Moreover, Petrobras, which can produce 2.8 million barrels of oil equivalent per day, is stuck with the construction of the Comperj petrochemical project in Rio de Janeiro. It requires an additional investment of approximately $4 billion, per local newspaperO Globo. Since the last decade, the project has witnessed a total investment of $13 billion. The partnership with CNPC can help Petrobras to finish the project.

About the Company

Petrobras is the largest Latin American oil and gas integrated company. It is involved in the exploration, production, refining, retailing and transportation of petroleum and its byproducts, both domestically and internationally. The company, headquartered in Rio de Janeiro,dominates Brazil’s oil and gas sector. It produces most of Brazil’s crude oil and natural gas and accounts for almost the entire refining capacity of the country.

Price Performance

Petrobras belongs to the Zacks categorized Emerging Markets Integrated industry. Its shares gained 11.7% over the last one year outperforming the broader sector’s increase of 10.7%.

Zacks Rank and Stocks to Consider

Petrobras presently has a Zacks Rank #3 (Hold).

Some better-ranked stocks in the oil and energy sector are Southcross Energy Partners, L.P. SXE and Canadian Natural Resources Limited CNQ.  Both these stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Southcross Energy’s sales for the second quarter of 2017 are expected to increase 29.4% year over year. The partnership delivered an average positive earnings surprise of 22.7% in the last four quarters.

Canadian Natural Resources’ sales for 2017 are expected to increase 49.4% year over year. The company delivered a positive earnings surprise of 30.8% in the first quarter of 2017.

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Petroleo Brasileiro S.A.- Petrobras (PBR): Free Stock Analysis Report
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PetroChina Company Limited (PTR): Free Stock Analysis Report
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