Petrobras: Parasitic management cuts investments to pay high and unsustainable dividends.

In October of last year I wrote “Unsustainable Dividends Paid by the Current Petrobras Management”. [1] I demonstrated that it was the reduction of investments, to levels insufficient to maintain reserves and oil production, the sales of profitable, strategic assets resilient to the fall in oil prices and their conjuncturally high prices, that enabled the payment of high and unsustainable dividends by Petrobras management in 2021 and 2022. Here I reiterate these conclusions based on the consolidated results for 2022. 

Reducing investments to maximize dividend payments. 

Table 1 presents, in US dollars (US$), the Dividends Paid and the Net Investment, the latter being the sum of acquisitions of fixed and intangible assets, reductions (additions) in investments and investments in securities, less the proceeds from the sale of assets (divestments). [2]

In 2021 and 2022, the average ratio between dividends paid and net investment was 804%, while between 2005 and 2020 it was 12,7%, on average. In other words, there was a 64-fold increase in dividend payments relative to annual investment. 

The profits and dividends distributed today are the result of investments made in the past. It is clear that increasing dividend payouts at the expense of investments will compromise future results. 

The numbers show that dividend distribution has been disproportionate to investments. Historical results demonstrate that such policies cannot be sustained. 

In addition to analyzing Petrobras' historical results, it is necessary to compare its investment and dividend distribution policies with those of other large integrated oil companies. 

Table 2 presents the consolidated 2022 data for Petrobras and major oil companies listed on stock exchanges. [2] [3]

Despite having the lowest revenue among the six companies, Petrobras paid out the largest amount in dividends. Furthermore, it was the oil company that made the second-lowest net investment, at only 35% compared to the average of the others. 

The relationship between dividends paid and net investments clearly demonstrates how the policies of Petrobras' top management differ from those of major global oil companies. Petrobras' ratio was 11 times higher than the average practiced by other oil companies. 

Analyzing Petrobras' history and the results of major international oil companies, it is evident that the dividends paid by the state-owned company's top management since 2021 are made at the expense of net investments and, for this and other reasons, are unsustainable. 

In the article “Unsustainable Dividends Paid by the Current Petrobras Management,” I demonstrate that the investments made in 2021 and 2022 are insufficient to replenish reserves and maintain Petrobras' oil production. I also describe the current high oil prices and the sale of profitable, strategic assets resilient to falling oil prices, which also contributed to the unsustainable dividend payments in 2021 and 2022. 

I reaffirm the Conclusion. 

The essential objective of mixed-economy companies, such as Petrobras, is not to obtain profit, much less non-recurring and short-term profit, but the implementation of public policies. What legitimizes the State's action as an entrepreneur (the public economic initiative of article 173 of the 1988 Constitution) is the production of goods and services that cannot be obtained efficiently and fairly under the regime of private economic exploitation. There is no sense in the State seeking revenue through the direct exploitation of economic activity. The sphere of action of mixed-economy companies is that of the objectives of economic policy, of structuring larger purposes, whose institution and operation go beyond the rationality of a single individual actor (such as the company itself or its shareholders). State-owned enterprises in general, and mixed-economy companies in particular, do not only have microeconomic purposes, that is, strictly "business" purposes, but essentially have macroeconomic objectives to achieve, as an instrument of the State's economic action. [4] 

Based on historical and comparative results from Petrobras and other major oil companies, it can be concluded that the reduction in investments to levels insufficient to maintain oil reserves and production, along with the sale of profitable, strategic assets resilient to falling oil prices and their cyclically high prices, enabled Petrobras' management to pay high and unsustainable dividends in 2021 and 2022.

References

[1] F. Coutinho, “Unsustainable Dividends Paid by the Current Management of Petrobrás,” 2022.

[2] Economatica and Securities and Exchange Commission (CVM).

[3] Petrobras, “Consolidated Interim Financial Statements”.

[4] F. Coutinho and G. Bercovici, “Petrobrás is the biggest victim of fake news in the history of Brazil,” 2021