Why is Petrobras the oil company that pays the most dividends to shareholders in the world? | Business

The distribution of dividends (remuneration to shareholders with a portion of the profit) by Petrobras became the target of intense disagreement, after the company greatly expanded these payments in 2022 and 2023, a period in which it stood out as the oil company that paid the most dividends in the world ($ 57.6 billion).

On the one hand, part of the government and groups that defend the central role of the state-owned company in the country’s development want the company to reduce payments to shareholders to expand its investments, for example, with the construction of new refineries (units that transform crude oil into fuels) and alternative energy sources.

On the other hand, market analysts and the company’s shareholders argue that the company maintains the high level of dividend distribution, which makes its shares more attractive. They argue that the company already has a high level of investment and that certain projects of interest to the government, such as refineries, would not be profitable.

Extraordinary dividends are those paid in excess of the minimum set by market rules and the company itself. Petrobras had already announced a total of R$72.4 billion in ordinary dividends referring to 2023 earnings, part of which was already paid last year.

The approval of the extra payment now reflects a retreat by Palácio do Planalto, after the state-owned company’s shares fell by 10% in one day last month, due to market dissatisfaction with the initial decision.

Although Petrobras is a publicly traded company, the Union maintains controlling interest in the company and, therefore, is decisive in the decision to release these resources.

However, the change of direction is not without a positive side for the government. As Petrobras’ largest shareholder, the Union should receive R$6 billion from the extra dividends released, an amount that could contribute to reducing the hole in federal accounts.

In the last two years, the amounts received totaled R$83.9 billion.

Petrobras goes back and decides to distribute half of the extraordinary dividends

A survey by financial data specialist Einar Rivero, from Elos Ayta Consultoria, for BBC News Brasil, shows that dividends distributed by Petrobras have risen sharply in the last three years.

The state-owned company paid R$72.7 billion in 2021, R$194.6 billion in 2022, and R$98.2 billion in 2023.

Considering dollar values, the company appears as the largest payer of dividends among the major oil companies in the last two years, when disbursements totaled US$57.6 billion, far surpassing the other three largest payers in the period, such as Exxon Mobil ( US$ 29.8 billion), Chevron (US$ 22.3 billion) and Petrochina. ($20.4 billion).

The values ​​recorded by Einar Rivero represent what actually came out of the company’s cash during the period, in dividends and interest on equity (another type of dividend). Part of what is paid in a year refers to earnings from the previous year, and so on.

The total amount paid from 2021 to 2023 (R$365.5 billion) is six times greater than everything distributed between 2010 and 2020 (R$59.3 billion).

The recent increase reflects the company’s greater profitability — at a time when oil prices are soaring — and the decision to save a smaller part of these gains for investments.

Petrobras recorded its two biggest profits in history in 2022 (R$188.3 billion) and 2023 (R$124.6 billion). During this period, it invested almost R$25 billion in 2022 and R$42.2 billion in 2023.

These are significant numbers, but well below those recorded between 2010 and 2015 (annual average of R$77.1 billion in investments), during the Dilma Rousseff (PT) government.

It was a period marked by strong investments in the exploration of oil reserves in the pre-salt, but also by controversial projects, such as works involving misappropriation of resources, a scandal revealed by the Lava Jato operation.

For chemical engineer Felipe Coutinho, president of the Association of Petrobras Engineers (AEPET), these high investments made years ago are reflected in the rise in profits today. In his view, the policy of reducing investments and maximizing dividend payments is not sustainable for the company.

He notes that, while the dividends paid are the largest in the world, investments in recent years were below those of the main competitors.

“The dividend that is distributed today, the profit that is generated today, is the result of past investment”, he states.

“So, if you don’t invest in the proportion necessary to find oil to the same extent that you deplete (the reserves), if you don’t invest to add value to oil through refining, transportation and marketing, if you don’t invest in petrochemicals, if you don’t invest in that will generate future revenue, you actually compromise the company’s future”, he argues.

Critics of the company’s management during the first PT governments recognize the importance of investments in pre-salt exploration, but consider that other projects carried out by Petrobras followed the government’s political vision rather than an assessment of what would be the most profitable form of apply the company’s earnings.

For this group, wrong investment decisions, the control of fuel prices (when Petrobras sells gasoline and diesel at prices lower than those practiced internationally) and the impacts of corruption scandals are factors that explain the four years in which the company recorded losses, totaling more than R$70 billion in losses from 2014 to 2017.

“In 2015, due to all the scandals, Petrobras did not pay dividends. And in 2016 and 2017, the total amount was R$777 million, which for Petrobras is nothing”, notes Rivero.

In his assessment, the Michel Temer and Jair Bolsonaro governments promoted the resumption of dividends, with a reasonable level of investment, with an annual average of R$28 billion between 2017 and 2022.

“It could be deduced (from the numbers): a reorganized company, after all the scandals, was able to invest and, in addition to investing, also pay dividends”, he states.

For finance professor Rafael Schiozer, from the São Paulo School of Business Administration at Fundação Getulio Vargas (FGV-EAESP), the company’s shares collapsed in March because shareholders understood that the government would be holding on to cash to make “major investments policy, which do not pay for themselves, with a return lower than the company’s cost of capital”.

“These are investments outside of Petrobras’ core area (main business), in which Petrobras is really very competent, which is exploration and production in the pre-salt. For example, Petrobras does not have a very good return on these refining projects. The latter even destroyed (the company’s) value”, he argues.

For Schiozer, what is unsustainable is not the company failing to invest, but allocating resources to projects that are not profitable. In his opinion, record dividend payments are not a problem and it is natural for Petrobras to pay more than its competitors.

“Obviously, an oil company in an emerging market has to provide a higher return for shareholders, because the risk is much greater. And, in the case of Petrobras, even more so, because it still has the risk of political influence,” he said.

In the view of economist Adilson de Oliveira, a retired professor at UFRJ, the distribution of dividends is in the company’s interest.

“Maintaining a reasonable level of dividends is important so that people continue investing in Petrobras, continue buying Petrobras shares”, he states.

He says that the high payments reflect the company’s high profitability in the pre-salt.

“Petrobras started to generate extraordinary dividends because Petrobras’ production cost in the pre-salt is in the range of US$25 per barrel, and it has been selling for US$80 now, but it sold at US$90”, he highlights .

“So, imagine the monumental profit margin that the company has, and the government, obviously, would like to appropriate these resources for its specific projects, and not necessarily the company’s projects”, he adds.

Behind the dividend clash, there are two views on Petrobras’ role. There are segments of society and the government that understand that the state-owned company, Brazil’s largest company, should be used to boost the country’s growth and guarantee energy security.

Others understand that the company, when having shares on the stock exchange, must be managed with a focus on results. In this group’s view, the company’s good financial performance naturally brings positive impacts to the economy and the government, such as the creation of jobs and the payment of taxes.

The disagreement over refinery investments reflects these different views.

For chemical engineer Felipe Coutinho, president of the Petrobras Engineers Association (AEPET), it is essential that the company invests in the sector, to reduce the country’s dependence on fuel imports. Today, the state-owned company exports crude oil and imports oil products.

Furthermore, he refutes that the strategy of investing in refining is not profitable.

“The results of the refining, transportation and commercialization segment (of fuels) vary according to the price of oil. It is an accounting issue. When the price of oil is relatively low, Petrobras, like any other company, records higher accounting results in this segment”, he states.

“And when the price of oil is relatively high, companies record a higher accounting performance in exploration and production (of crude oil). Therefore, Petrobras’ integrated operations aim to make the company profitable and sustainable regardless of price variations “, he adds.

The director of the Brazilian Infrastructure Center (CBIE), Pedro Rodrigues, in turn, is yet another critic of investments in refineries. In his view, however, the problem is not just in this sector.

In his view, there are also bad projects in the area of ​​energy transition, such as the creation of seven offshore wind farms (at sea), in different states along the Brazilian coast.

“The problem with Petrobras is that every four years (with the change of government), the company’s direction changes from water to wine. I see that the investments that the new management has indicated have much more political return than return economic”, he assesses.

“For example, the volume of money indicated for the construction of offshore wind farms. I don’t even know if Siemens has enough turbines to meet that volume (of energy), or if Brazil has enough demand for that volume. So, it’s something that It doesn’t make sense,” he criticizes.