Petrobras 2022 Form 20-F Summary
Business context and reporting period
Petrobras is a Brazilian, federally controlled integrated energy company focused on exploration and production, refining, transportation and marketing, natural gas, power, petrochemicals and biofuels. The filing is an annual report for the fiscal year ended December 31, 2022, prepared under IFRS in U.S. dollars. The source does not provide a separate fourth-quarter income statement; accordingly, the financial summary below covers the full year.
Petrobras remained concentrated in Brazil and in deepwater and ultra-deepwater assets. Brazil represented 99% of global oil production and 99.5% of proved oil and gas reserves. The company produced 2.684 million boe/d in 2022, including 2.648 million boe/d in Brazil.
Key financial metrics
| Metric | 2022 | 2021 | Change |
|---|---|---|---|
| Sales revenue | US$124.474 billion | US$83.966 billion | +48.2% |
| Gross profit | US$64.988 billion | US$40.802 billion | +59.3% |
| Operating income | US$57.114 billion | US$37.584 billion | +52.0% |
| Net income | US$36.755 billion | US$19.986 billion | +83.9% |
| Net income attributable to Petrobras shareholders | US$36.623 billion | US$19.875 billion | +84.3% |
| Adjusted EBITDA | US$66.217 billion | US$43.558 billion | +52.0% |
| Cash flow from operations | US$49.717 billion | US$37.791 billion | +31.6% |
| Free cash flow | US$40.136 billion | US$31.466 billion | +27.6% |
| Capital expenditures | US$9.848 billion | US$8.772 billion | +12.3% |
| Gross debt, including leases | US$53.799 billion | US$58.743 billion | -8.4% |
| Net debt | US$41.516 billion | US$47.626 billion | -12.8% |
| Net debt/Adjusted EBITDA | 0.63x | 1.09x | Improved |
Gross margin was approximately 52.2%, compared with 48.6% in 2021. Net income margin was approximately 29.5%, compared with 23.8% in 2021. The filing does not present a separately identified 2022 Q4 margin or quarterly cash flow measure.
- Cash and cash equivalents were US$7.996 billion; adjusted cash, including certain government bonds and time deposits, was US$12.283 billion.
- Petrobras had US$3.576 billion of current finance debt and US$26.378 billion of non-current finance debt. Lease liabilities totaled US$23.845 billion.
- Debt service, including finance debt and lease payments, totaled US$16.614 billion in cash outflows during 2022.
- Proposed 2022 shareholder distributions totaled US$43.187 billion, or US$3.3106 per outstanding share, subject to shareholder approval.
- Production fell 3% year over year, while pre-salt production increased 1% to 1.635 million boe/d. Lifting cost increased to US$5.8/boe excluding leases, from US$5.0/boe.
- Proved reserves increased to 10.470 billion boe, from 9.878 billion boe. Proved undeveloped reserves increased 28% to 5.347 billion boe.
Material changes versus the prior comparable period
- Revenue and profitability benefited from a 43% increase in average Brent prices, higher domestic oil-product prices and higher sales volumes.
- Net finance expense declined to US$3.840 billion from US$10.966 billion, primarily because of lower foreign-exchange losses, lower interest expense and reduced debt-repurchase costs.
- Income taxes increased to US$16.770 billion from US$8.239 billion, reflecting substantially higher pretax income.
- Impairment expense was US$1.315 billion, compared with a US$3.190 billion impairment reversal in 2021. The 2022 expense included losses in Brazilian producing properties, Marlim-related equipment and Itaboraí utilities.
- Exploration and Production net income increased 37.5% to US$32.073 billion; Refining, Transportation and Marketing net income increased 32.0% to US$7.426 billion; Gas and Power returned to a US$1.038 billion profit from a US$219 million loss.
- Divestitures and portfolio changes included Gaspetro, REMAN, SIX, Carmópolis, several upstream fields and a 5% interest in the Búzios surplus production-sharing contract. Cash proceeds from divestitures were US$4.846 billion.
- Refining capacity declined to 1.851 million bbl/d from 1.897 million bbl/d, mainly following asset sales. Refinery throughput declined to 1.662 million bbl/d from 1.780 million bbl/d.
- Oil and product spill volume increased materially to approximately 218 cubic meters from 11.6 cubic meters, with one event accounting for 88% of the 2022 volume. The company recorded five fatalities, compared with three in 2021.
Guidance, outlook and management commentary
- The 2023-2027 Strategic Plan calls for US$78 billion of capital expenditures, plus approximately US$20 billion for chartering new oil rigs. About US$64 billion is allocated to E&P and US$9.2 billion to Refining, Gas and Power.
- Management targets 2023 oil production of 2.1 million bbl/d and total oil and gas production of 2.6 million boe/d, each with a 4% tolerance range.
- The plan assumes Brent prices of US$85/bbl in 2023, declining to US$65/bbl in 2027, and an average exchange rate of approximately R$5.00 per U.S. dollar through 2026.
- The plan targets gross debt between US$50 billion and US$65 billion, reference cash of US$8 billion and maintenance of debt around US$55 billion. Management describes the plan as self-financing, assuming the current dividend policy and planned divestitures of US$10 billion to US$20 billion.
- Planned growth includes 18 new FPSOs during 2023-2027, including seven in Búzios, and continued concentration on pre-salt assets.
- Low-carbon investments are projected at US$4.4 billion, including US$600 million for a decarbonization fund, US$800 million for refinery efficiency and US$600 million for biorefining.
- On February 28, 2023, the Ministry of Mines and Energy requested a 90-day suspension of asset sales while national energy policy was reassessed. The filing states that the effect on ongoing divestitures and the Strategic Plan remained uncertain as of March 29, 2023.
- Following the 2022 presidential election, proposed changes to the Board and executive officers increased uncertainty regarding strategy, pricing policy, portfolio management and capital allocation. Jean Paul Prates was re-elected CEO through April 2025, subject to the disclosed governance process.
Risks, contingencies and unusual items
- Commodity-price, refining-margin, exchange-rate and interest-rate volatility remain central earnings and cash-flow risks. At year-end, 75.7% of finance debt was U.S.-dollar denominated and 43.4% was floating-rate debt.
- The Brazilian federal government controls a majority of voting shares and may pursue public-interest, macroeconomic or social objectives through Petrobras. Such objectives could conflict with minority shareholder interests or affect pricing and investment decisions.
- Legal and regulatory exposure is significant. Provisions for legal proceedings were US$3.010 billion, while possible-loss contingent liabilities totaled US$49.171 billion, including US$32.094 billion of tax matters, US$8.272 billion of labor matters and US$7.548 billion of general civil matters.
- The company recorded US$1.362 billion of legal, administrative and arbitration expenses in 2022. The EIG litigation in the United States resulted in a ruling on liability, but damages remained unresolved; certain assets in the Netherlands were subject to precautionary attachment.
- Petros pension and health-care liabilities totaled US$11.246 billion. Petrobras expects additional contributions under the 2021 pension deficit settlement plan, including approximately US$769 million over the life of the plan.
- Decommissioning provisions increased to US$18.600 billion from US$15.619 billion, reflecting the long-term and uncertain cost of abandoning offshore and other production assets.
- Subsequent events included a US$1.092 billion final administrative tax assessment related to foreign subsidiaries and a March 2023 final administrative tax assessment of approximately US$3.5 billion related to CIDE and PIS/COFINS on vessel charter payments. The filing states that these matters were classified as possible losses and were not provisioned.
- Petrobras does not generally maintain business-interruption insurance for Brazilian operations and lacks insurance for most assets against war or sabotage.
- Management and KPMG concluded that internal control over financial reporting was effective as of December 31, 2022. KPMG’s critical audit matters included employee benefit obligations, E&P impairment testing, legal contingencies and decommissioning provisions.
Most important facts for investors to verify
- Whether production growth from new FPSOs offsets divestitures, natural decline, higher lifting costs and execution delays.
- Whether the government’s influence changes fuel-pricing policy, dividend policy, the Strategic Plan or the planned divestiture program.
- Whether US$78 billion of planned CAPEX and US$10 billion to US$20 billion of divestitures remain financeable under lower Brent prices or weaker refining margins.
- The timing, enforceability and potential cash impact of the EIG case, Lava Jato-related investor claims, tax disputes and other contingencies.
- The sustainability of proposed dividends relative to free cash flow, debt maturities, pension contributions, decommissioning obligations and capital requirements.
- The sensitivity of asset values and impairment charges to Brent prices, exchange rates, discount rates, reserve revisions and carbon-transition assumptions.
- The independently audited 2022 greenhouse-gas data, because the filing states that reported GHG results remained subject to third-party audit.