Petrobras 2021 Form 20-F Summary
Business context and reporting period
Petrobras is a Brazilian state-controlled, vertically integrated energy company focused on exploration and production, refining, transportation and marketing, natural gas, power, petrochemicals and related activities. The filing is an annual report for the fiscal year ended December 31, 2021, rather than a standalone 2021 fourth-quarter filing. Financial statements are presented in U.S. dollars under IFRS as issued by the IASB.
Operations are concentrated in Brazil, particularly deepwater and ultra-deepwater pre-salt assets. Petrobras reported 45,532 employees, 2.774 million barrels of oil equivalent per day of total oil and gas production, and 9.878 billion barrels of oil equivalent of proved reserves at year-end.
Key financial metrics
| Metric | 2021 | 2020 | Change |
|---|---|---|---|
| Sales revenue | US$83.966 billion | US$53.683 billion | +56.4% |
| Gross profit | US$40.802 billion | US$24.488 billion | +66.6% |
| Operating income | US$37.584 billion | US$10.063 billion | +273.5% |
| Net income attributable to Petrobras shareholders | US$19.875 billion | US$1.141 billion | +1,642% |
| Adjusted EBITDA | US$43.558 billion | US$28.391 billion | +53.4% |
| Cash flow from operations | US$37.791 billion | US$28.890 billion | +30.8% |
| Free cash flow | US$31.466 billion | US$23.016 billion | +36.7% |
| Capital expenditures | US$8.772 billion | US$8.056 billion | +8.9% |
| Cash and cash equivalents | US$10.480 billion | US$11.725 billion | -10.6% |
| Gross debt, including leases | US$58.743 billion | US$75.538 billion | -22.2% |
| Net debt | US$47.626 billion | US$63.168 billion | -24.6% |
Reported gross margin was approximately 48.6%, operating margin approximately 44.8%, and net margin attributable to Petrobras shareholders approximately 23.7%, based on reported sales revenue. Net debt to Adjusted EBITDA declined to 1.09x from 2.22x.
Material changes versus the prior comparable period
- Revenue and profitability benefited primarily from a 70% year-over-year increase in average Brent prices, stronger domestic demand and higher diesel and gasoline margins following the COVID-19 disruption in 2020.
- Impairment reversals of US$3.190 billion in 2021 replaced impairment charges of US$7.339 billion in 2020, largely reflecting higher oil-price assumptions and updated strategic-plan projections.
- Production declined 2% to 2.774 million barrels of oil equivalent per day because of divestments, decommissioning and natural decline, although pre-salt production increased 5% and represented 73% of Brazilian oil production.
- Natural gas and electricity demand recovered. Gas and Power revenue increased 56%, but the segment reported a US$206 million attributable loss, compared with US$821 million of income in 2020, mainly due to sharply higher LNG and natural-gas acquisition costs.
- Debt reduction accelerated through US$23.642 billion of debt repayments and repurchases. The weighted-average debt maturity increased to 13.39 years from 11.71 years.
- Cash generated from operations and divestments funded capital expenditures, debt reduction and dividends. Divestment proceeds received in 2021 totaled US$4.783 billion.
- Major completed divestments included the remaining interest in Vibra Energia, the RLAM refinery, the remaining interest in NTS, mature oil and gas fields, electricity assets and other non-core businesses.
Guidance, outlook, commentary and unusual items
- The 2022-2026 Strategic Plan provides for US$68 billion of capital expenditures, including US$57 billion for Exploration and Production, US$7.1 billion for Refining and Gas and Power, and approximately US$1.8 billion for operational decarbonization initiatives.
- Management expects 15 new FPSOs to begin operating during 2022-2026 and forecasts continued growth in oil and gas production despite planned divestments. The 2022 production target was revised downward by approximately 70 thousand barrels of oil equivalent per day to a range centered on 2.6 million barrels of oil equivalent per day, primarily because of the Atapu and Sépia production-sharing arrangements.
- Strategic-plan assumptions include average Brent prices of US$72 per barrel in 2022, US$65 in 2023, US$60 in 2024 and US$55 from 2025 onward, with projected average exchange rates of approximately R$5.4 to R$5.1 per U.S. dollar during 2022-2026.
- Management expects to fund the plan without new net fundraising, relying on operating cash generation and US$15 billion to US$25 billion of planned divestments.
- Management proposed US$18.541 billion of 2021 shareholder distributions, equivalent to 60% of free cash flow under the dividend policy. The proposed amount remained subject to shareholder approval at the 2022 annual meeting.
- Notable non-recurring or judgment-sensitive items included impairment reversals, a US$631 million gain from the Búzios co-participation agreement, a US$574 million gain on the RLAM sale, a US$950 million contingent payment related to the BM-S-8/Bacalhau transaction, and significant pension and health-care actuarial remeasurements.
- Petrobras announced an ambition to achieve net-zero greenhouse-gas emissions from operated scopes 1 and 2 activities on a timeframe compatible with the Paris Agreement. The filing also identifies climate regulation, energy transition and declining fossil-fuel demand as material strategic risks.
Principal risks and contingencies
- Exposure to volatile crude oil, oil-product and natural-gas prices, refining margins, exchange rates and interest rates remains substantial. Approximately 87.3% of finance debt was denominated in currencies other than the Brazilian real and 37.3% was floating-rate debt.
- The Brazilian federal government controls Petrobras and may pursue macroeconomic, social or energy-policy objectives that differ from minority shareholder interests, including possible changes to fuel-pricing policy and strategic direction.
- As of December 31, 2021, disclosed contingent liabilities considered possible totaled US$38.561 billion, including US$24.785 billion of tax matters, US$7.172 billion of labor matters, US$5.412 billion of civil matters and US$1.192 billion of environmental matters.
- Legal and regulatory matters include Lava Jato-related investor claims, the Dutch collective action, Brazilian and Argentine proceedings, tax disputes, labor litigation, environmental proceedings and disputes concerning natural-gas supply contracts.
- Recorded provisions included US$15.619 billion for decommissioning costs, US$9.880 billion for post-retirement benefit obligations and US$2.018 billion for legal proceedings. These balances depend on actuarial, reserve, cost, regulatory and timing assumptions.
- Petrobras generally does not maintain business-interruption insurance for Brazilian operations and does not insure most assets against war or sabotage. Operational incidents, spills, cyberattacks, water scarcity, strikes and supply-chain disruptions could materially affect results.
- The filing states that management and KPMG concluded internal control over financial reporting was effective as of December 31, 2021. KPMG identified critical audit matters involving post-retirement obligations, E&P impairment testing, legal contingencies and decommissioning provisions.
Important facts for investors to verify
- Reconcile the headline net income of approximately US$19.9 billion to the audited attributable figure of US$19.875 billion and distinguish recurring operating cash generation from impairment reversals, divestment gains and other unusual items.
- Review the sustainability of dividends under lower Brent-price scenarios, particularly the assumptions of US$55 per barrel in the long term and continued divestment proceeds.
- Monitor delivery of the US$68 billion capital program, FPSO start-ups, pre-salt production growth and the revised 2022 production target.
- Confirm the timing, approvals and cash proceeds of pending divestments, including REMAN, Gaspetro, SIX, Carmópolis and the Búzios transfer to CNOOC.
- Assess refinancing and currency exposure using the debt maturity schedule, lease commitments, floating-rate debt and the 87.3% non-real-denominated debt profile.
- Track the US$38.561 billion of possible contingent liabilities and the unresolved Lava Jato-related investor claims, tax disputes, labor claims and natural-gas contract litigation.
- Evaluate the sensitivity of reserves, impairment reversals, decommissioning liabilities and pension obligations to Brent prices, exchange rates, discount rates, production timing and medical-cost assumptions.