(Bloomberg) — Brazil’s state-controlled oil giant Petrobras is curbing politically charged dividends after reporting lower profits.
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Petrobras’s board approved 1.04 reais a share, or 13.45 billion reais ($2.6 billion), in dividends for the first quarter, it said in a regulatory filing Monday. Analysts were expecting $3.2 billion, according to the average of five estimates reviewed by Bloomberg. Net income also came in lower than expected at 23.7 billion reais, 38% lower than a year earlier.
The decision on the quarterly payment follows a recent tug of war over how Petrobras should allocate the cash it generated in 2023. The disagreement roiled markets and fueled reports that Chief Executive Officer Jean Paul Prates’s job was at risk. Prates was in favor of paying out some of the cash as a special dividend while some members of the government wanted the national oil company to retain the money.
Petrobras wound up delivering 50% of available cash to investors as a special dividend. The government is the biggest shareholder and the dividends have helped shore up a fiscal deficit at a time spending is on the rise.
The latest results are “consistent” with Petrobras’s ability to execute its business plan, and future investments are secure thanks to cash generation, Prates said Monday in a statement.
Still, President Luiz Inacio Lula da Silva continues to criticize how much Petrobras pays out to private investors. Petrobras was the second-biggest dividend payer among major oil companies last year, according to data compiled by Bloomberg.
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Petrobras’s American depositary receipts dropped 2% in pre-market trading to $16.70 at 7:41 a.m. in New York.
The first quarter dividends are less than the $5 billion Petrobras paid out a year ago under a more generous policy, and less than the $2.9 billion it agreed to pay from fourth-quarter earnings.
The payouts were in line with its policy of paying out 45% of free cash flow, Petrobras said in the filing, down from 60% before management changed under Lula. When including 1.15 billion reais in share buy backs, shareholders received a total compensation of 14.6 billion reais, Petrobras said.
Going forward, Petrobras’s board could decide to distribute more of the funds earmarked for extraordinary dividends. Petrobras’s industry-leading shareholder payouts have encouraged many investors to own the stock, despite the risks of a state-controlled company that is often called upon to contain fuel inflation at the expense of profits.
The main question is if “extraordinary dividends become recurring,” Citi analysts wrote in a note to clients ahead of the earnings report.
Investors are concerned that increased capital expenditures will reduce returns in the coming years. In February, Prates said that the company would be more cautious about issuing blockbuster payouts because it plans to spend more on wind, solar and biofuels — business segments that are viewed as less profitable than producing oil and gas.
Petroleo Brasileiro SA, as the company is formally know, reported adjusted earnings before items of 60 billion reais, missing the 69 billion-real average estimate of analysts tracked by Bloomberg. Net income was 23.7 billion reais, below consensus.
The company’s quarter was marked by scheduled stoppages which resulted in lower sales and export volumes. Gasoline sales suffered from increased competition from ethanol.
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The latest results from Petrobras’s international peers were mixed and left investors looking for direction. Shell Plc, TotalEnergies SE and Chevron Corp. did better than expected, while Exxon Mobil Corp.’s profit fell short. All of the companies kept their focus on returning cash to shareholders and are looking at share buybacks after returning blockbuster dividends las year.
(Updates with American depositary receipts in seventh paragraph)
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