Petrobras 2023 Form 20-F Summary
Business context and reporting period
Petrobras is a Brazilian mixed-capital, federally controlled energy company engaged primarily in exploration and production, refining, transportation, marketing, natural gas, power generation, petrochemicals, fertilizers, biofuels and low-carbon activities. The filing is an audited annual report for the fiscal year ended December 31, 2023, prepared under IFRS as issued by the IASB and presented in U.S. dollars. The filing is not a standalone fourth-quarter report.
Petrobras operated mainly in Brazil, with 94% of 2023 production from deepwater and ultra-deepwater assets. Its principal operating segments were Exploration & Production, Refining, Transportation & Marketing, and Gas & Low Carbon Energies.
Key financial and operating metrics
| Metric | 2023 | 2022 | Change |
|---|---|---|---|
| Sales revenue | US$102.4 billion | US$124.5 billion | Down 17.7% |
| Operating income | US$38.0 billion | US$57.1 billion | Down 33.4% |
| Net income | US$25.0 billion | US$36.8 billion | Down 32.0% |
| Net income attributable to Petrobras shareholders | US$24.9 billion | US$36.6 billion | Down 32.0% |
| Net cash from operating activities | US$43.2 billion | US$49.7 billion | Down 13.1% |
| Free cash flow | US$31.1 billion | US$40.1 billion | Down 22.5% |
| Adjusted EBITDA | US$52.4 billion | US$66.2 billion | Down 20.9% |
| Capital expenditures | US$12.7 billion | US$9.8 billion | Up 29% |
| Cash and cash equivalents | US$12.7 billion | US$8.0 billion | Up US$4.7 billion |
| Adjusted cash and cash equivalents | US$17.9 billion | US$12.3 billion | Up US$5.6 billion |
| Gross debt, including leases | US$62.6 billion | US$53.8 billion | Up US$8.8 billion |
| Net debt | US$44.7 billion | US$41.5 billion | Up US$3.2 billion |
| Net debt/Adjusted EBITDA | 0.85x | 0.63x | Higher leverage |
Gross profit was US$54.0 billion, implying a gross margin of approximately 52.7%. Operating income represented approximately 37.1% of sales revenue, while net income represented approximately 24.4%.
Production of oil, natural gas and NGL increased 4% to 2.782 million barrels of oil equivalent per day, including 2.748 million boe/d in Brazil. Pre-salt oil production increased 10% to 1.806 million barrels per day. The company reported lifting costs of US$5.6 per boe excluding leases and US$7.6 per boe including leases.
Refinery utilization was 92%, the highest annual level since 2014. Petrobras processed 1.696 million barrels per day and produced 1.772 million barrels per day of oil products. Refining carbon intensity improved to 36.8 kgCO2e/CWT from 37.9 in 2022.
Material changes versus the prior comparable period
- Revenue and profitability declined primarily because average Brent prices fell to approximately US$83 per barrel from US$101 in 2022, while refined-product crack spreads, especially diesel, also weakened.
- Net income was additionally affected by higher operating expenses, impairment losses, abandonment costs and taxes, and the absence of the large 2022 financial compensation from co-participation agreements in the Sépia and Atapu fields.
- Net finance expense improved to US$2.3 billion from US$3.8 billion, primarily because foreign-exchange losses declined.
- Impairment expense increased to US$2.7 billion from US$1.3 billion. Major 2023 charges included US$2.2 billion on Brazilian producing properties, including Roncador, US$486 million on the second refining unit of RNEST and US$364 million on exploratory assets.
- E&P net income fell 30% to US$22.5 billion, RT&M net income fell 59% to US$3.0 billion, while G&LCE net income increased 24% to US$1.3 billion, mainly because of lower natural-gas procurement costs.
- Capital expenditures increased, with 82% directed to E&P. Cash returned to shareholders totaled approximately US$20.4 billion, including dividends and share repurchases.
- Petrobras repurchased 104.1 million preferred shares for approximately US$735 million during 2023.
- Proved oil and gas reserves increased to 10.921 billion boe from 10.473 billion boe. Additions were driven mainly by asset performance, discoveries and extensions, partly offset by 155 million boe of asset sales.
- The company changed its management presentation of segments, moving biofuels into G&LCE and fertilizers into RT&M. Prior-year segment data was not fully reclassified because management considered the impact immaterial.
Guidance, outlook and management commentary
The 2024-2028+ Strategic Plan forecasts total capital expenditures of US$102 billion, including US$91 billion for projects under implementation and US$11 billion for projects under evaluation. Planned allocation is approximately 72% to E&P, 16% to RT&M, 9% to G&LCE and 3% to corporate activities.
- E&P capital expenditures are projected at US$73 billion, with approximately 67% allocated to pre-salt assets. Exploration spending is projected at US$7.5 billion, including approximately 50 wells.
- Petrobras expects 14 new FPSOs to enter operation during 2024-2028 and targets total oil and gas production of approximately 3.2 million boe/d by the end of the five-year period.
- RT&M capital expenditures are projected at US$17 billion, including projects intended to increase refining capacity by 225 thousand barrels per day and low-sulfur diesel capacity by more than 290 thousand barrels per day.
- G&LCE capital expenditures are projected at US$3 billion. Route 3 and its natural-gas processing plant are expected to begin operations in 2024.
- Up to US$11.5 billion is allocated to low-carbon projects over the plan period, including biorefining, wind, solar, carbon capture and storage, hydrogen and operational decarbonization. Low-carbon investment is expected to average 11% of total investment and reach 16% by 2028.
- Management’s financing assumptions include gross debt below US$65 billion, a reference cash-flow level of US$8 billion and financing investment primarily through operating cash flow and partnerships.
- The shareholder remuneration policy provides for a minimum annual distribution of US$4 billion when average Brent exceeds US$40 per barrel and, subject to conditions, distribution of 45% of free cash flow. The proposed 2023 shareholder remuneration was US$15.5 billion.
Risks, contingencies and unusual items
- Results remain highly sensitive to Brent, refined-product prices, refining margins, natural-gas and LNG prices, exchange rates, demand and Brazilian pricing decisions.
- The Brazilian federal government controls Petrobras and may influence strategy, pricing, investments, portfolio management and shareholder remuneration. These objectives may differ from those of minority shareholders.
- As of December 31, 2023, 79.9% of finance debt was denominated in currencies other than the Brazilian real and 40% was floating-rate debt, exposing the company to exchange-rate and interest-rate changes.
- Reported gross debt includes US$33.8 billion of lease liabilities. The filing also identifies US$65.4 billion of nominal lease commitments for agreements whose lease terms had not commenced.
- Provisioned legal proceedings totaled US$3.3 billion. Possible-loss contingent liabilities totaled US$60.2 billion, including US$37.2 billion of tax claims, US$11.5 billion of civil claims, US$10.2 billion of labor claims and US$1.4 billion of environmental claims.
- The company reported unfunded post-employment benefit liabilities of US$16.4 billion, including US$9.7 billion for the health-care plan and US$6.7 billion for pension plans.
- Decommissioning provisions increased to US$23.2 billion, with an undiscounted nominal amount of US$48.8 billion. The company estimates that accelerating decommissioning by one, three or five years could increase the provision by US$1.1 billion, US$3.4 billion or US$5.5 billion, respectively.
- Material unresolved matters include the Dutch investor collective action, Brazilian and Argentine investor claims related to Lava Jato, and the EIG lawsuit concerning Sete Brasil. The company states that potential losses in several of these matters cannot be reliably estimated.
- The EIG proceedings include a U.S. district court ruling holding Petrobras liable on the plaintiffs’ claims, while damages remain to be determined and the appeal remains pending. A Dutch prejudgment attachment was estimated at approximately US$297 million for purposes of that proceeding.
- Petrobras does not maintain general business-interruption insurance for most Brazilian operations, war or sabotage insurance for most assets, or cyber-incident insurance.
- Climate-transition risks could reduce oil demand and prices, increase regulatory and compliance costs, and affect asset values. The filing’s sensitivity analysis indicates potential additional E&P impairment of US$6.6 billion under an IEA net-zero oil-price scenario, although management does not consider that scenario its best estimate.
- Cybersecurity risks are monitored as strategic risks. Management reported no material information-security breaches in the last three fiscal years and no material financial impact from prior incidents.
- Subsequent to year-end, Petrobras agreed to pay US$172 million to settle a royalties and special-participation dispute concerning the Jubarte field.
Most important facts for an investor to verify
- Reconcile the decline in earnings and cash flow with Brent prices, refining margins, domestic fuel pricing and the new commercial pricing strategy.
- Assess whether the planned US$102 billion investment program can be funded while maintaining gross debt below US$65 billion and continuing shareholder distributions.
- Review the maturity profile of the US$62.6 billion gross debt, US$33.8 billion lease liabilities and the approximately US$38.3 billion of finance debt and lease obligations maturing over the next five years.
- Evaluate the sensitivity of asset values to Brent prices, exchange rates, production curves, discount rates, impairment assumptions and decommissioning timing.
- Monitor the outcome and potential financial exposure from the EIG litigation, Dutch and Argentine investor claims, Lava Jato-related proceedings, tax contingencies and Petros obligations.
- Verify execution of the 14-FPSO production schedule, Route 3, RNEST and other refining projects, and the associated capital-cost and commissioning risks.
- Track changes in government influence, CADE commitments, divestment policy, fuel pricing, dividend policy and the strategic emphasis on fertilizers, petrochemicals and low-carbon investments.
- Confirm the proposed 2023 shareholder remuneration at the April 2024 annual meeting and distinguish approved payments from amounts that remained subject to shareholder approval at the filing date.