Executive Summary / Key Takeaways

• Petrobras is demonstrating robust operational execution, significantly increasing oil and gas production, particularly from its highly productive pre-salt assets, to offset volatile global oil prices.
• The company is aggressively optimizing its capital expenditure and project portfolio, implementing cost-reduction strategies and innovative contracting models to enhance profitability and efficiency in a challenging market.
• Strategic investments in energy transition, including biofuels and natural gas infrastructure, alongside a return to the fertilizer and petrochemical sectors, underscore a diversified growth agenda.
• Despite external market volatility and accounting complexities, Petrobras maintains strong cash flow generation and a disciplined approach to debt management and shareholder remuneration.
• Its competitive edge is reinforced by deepwater technological leadership and unique access to vast domestic resources, positioning it for sustained value creation amidst a competitive global energy landscape.

Setting the Foundation: Petrobras' Integrated Energy Vision

Petrobras, incorporated in 1953, has evolved into a fully integrated energy company, a structure that remains central to its operational and strategic framework. A pivotal moment in its history was achieving oil self-sufficiency in 2006, a long-held strategic objective. The Campos Basin, a foundational asset now celebrating its 50th anniversary, served as a crucial production model, providing deepwater expertise that informed subsequent exploration efforts. This historical journey has shaped Petrobras' current strategic responses to market dynamics, emphasizing its core business of oil and gas exploration and production, while also expanding into refining, commercialization, and emerging low-carbon energy solutions.

The global energy landscape is characterized by significant volatility, with Brent crude prices fluctuating from $84 per barrel in Q1 2024 to approximately $65 per barrel in Q2 2025. Geopolitical factors and evolving demand patterns contribute to this uncertainty, impacting all players in the sector. In this environment, Petrobras' overarching strategy is to leverage its integrated model and foundational strengths to drive value. The company operates in a highly competitive industry, facing global giants like ExxonMobil (XOM), Chevron (CVX), BP (BP), and Royal Dutch Shell (SHEL). While these competitors boast extensive global diversification and often lead in technological integration and scale, Petrobras differentiates itself through its unique access to vast domestic resources, particularly in Brazil's offshore fields, and its integrated supply chain. This provides a distinct value proposition, enhancing its market share in Latin America and contributing to robust cash flow generation.

Petrobras' competitive standing is significantly bolstered by its technological leadership in deepwater and ultra-deepwater exploration and production, especially in the pre-salt layer. This core differentiated technology enables the company to access highly productive reservoirs. For instance, the largest platform in Brazil, which began operating in February, is producing 200,000 barrels of oil per day with only four pre-salt production wells and is expected to reach 225,000 barrels per day with a fifth well. Individual wells in the Buzios field can produce up to 70,000 barrels per day. The anchoring of the Alexandre de Gusmão platform in a record 10 days in March 2025 further exemplifies operational efficiency driven by technological advancements. These tangible benefits translate into superior production volumes and cost-effectiveness, strengthening Petrobras' competitive moat.

Beyond extraction, Petrobras is actively engaged in R&D and new technological developments aimed at decarbonization and efficiency. This includes the launch of its first bunker of fossil fuel with 24% renewable content in the Asian market in February 2025, a mixture of mineral fuel oil and biofuels from used cooking oil. The company is also pursuing green ethane production at Recap and exploring green naphtha and green ethane from renewables at the Rio Grande refining plant. Furthermore, the implementation of a "Build, Operate, Transfer" (BOT) model for projects allows for specification changes during bidding, leading to significant cost reductions and a 15-20% reduction in platform weight. These technological advancements and strategic initiatives are crucial for Petrobras' long-term growth, enhancing its market positioning and contributing to improved financial performance through higher production, lower costs, and better margins.

Operational Momentum and Financial Resilience

Petrobras has demonstrated remarkable operational momentum, particularly in its Exploration and Production (E&P) segment, which is the primary driver of its recent performance. In Q2 2025, oil production averaged 2.3 million barrels per day, marking a 5% increase from Q1 2025 and an 8% rise compared to Q2 2024. This upward trajectory continued into July 2025, with production reaching an average of 2.47 million barrels per day, representing an unequivocal ramp-up of 380,000 barrels per day compared to Q4 2024. Total production in Q2 2025 achieved a new record of 4.2 million barrels of oil equivalent per day. This increased output was instrumental in offsetting a 10% decline in Brent prices, which averaged around $68 per barrel in Q2 2025, allowing the company to deliver financial results on par with the previous quarter. Commercial gas production also saw a significant 15% increase in Q2 2025, largely due to the progress of the Rota 3 pipeline and the Boaventura gas processing unit.

The Refining, Commercialization, and Logistics segment has also contributed to value creation. In Q2 2025, Petrobras implemented three diesel price reductions and one gasoline price reduction, strategically maintaining competitive margins and profitable operations. The company's refineries operated at their highest utilization factor in a decade in 2024, reaching 95% in Q3 2024 and 97% in September. The revamp of Train 1 at the RNEST refinery increased processing capacity from 80,000 to 130,000 barrels per day, with 70% of this capacity dedicated to producing high-value S10 diesel. This focus on high-margin products, coupled with efficient operational management, underscores the company's commitment to optimizing downstream value.

The Gas and Low Carbon Energies segment is expanding, with the second module of the natural gas processing unit at the Boaventura complex in Itaborai, Rio de Janeiro, slated to begin operations in the second half of 2025, increasing total processing capacity to 21 million cubic meters per day. Petrobras is actively expanding its natural gas market through direct sales to large consumers and increasing LPG supply, aiming to efficiently place its products. The company's commitment to energy transition is further evidenced by its ProForest Plus program, a partnership with the National Development Bank of Brazil to reforest 50,000 hectares in the Amazon, targeting the capture of 15 million tons of carbon.

Financially, Petrobras has demonstrated resilience despite external headwinds. In Q2 2025, net income (excluding one-off events) was $4.1 billion, and EBITDA (excluding one-off events) was $10.2 billion. Operating cash flow stood at $7.5 billion. For the full year 2024, the company generated over BRL 200 billion in cash and paid over BRL 102 billion in dividends. Operating cash generation in 2024 was BRL 204 billion, with financial debt reduced to BRL 23 billion, its lowest level since 2008.

The company's TTM Gross Profit Margin stands at 49.12%, Operating Profit Margin at 26.60%, Net Profit Margin at 15.99%, and EBITDA Margin at 42.72%, reflecting strong underlying profitability. Its TTM Dividend Yield of 16.21% highlights significant shareholder returns.

While a BRL 17 billion accounting loss in Q4 2024, driven by a BRL 59 billion exchange rate variation, impacted reported net income, management clarified this as a non-cash event with no bearing on operational soundness or financial health.

Strategic Capital Allocation and Future Outlook

Petrobras is committed to a disciplined capital allocation strategy, focusing on investments that generate value and support sustainable growth. The company's CapEx in Q2 2025 was $4.4 billion, bringing the year-to-date total to $18.5 billion, aligning with its annual guidance. All contracts for the 2025 plan and part of 2026 are already signed, ensuring adherence to CapEx guidelines. The company's debt target remains $65 billion, with a current gross debt of $59.1 billion, well within the $75 billion limit defined in its 2025-2029 business plan. This flexibility in the debt ceiling was strategically adjusted to accommodate potential investments and manage cash flow in volatile scenarios.

Looking ahead, Petrobras projects its average oil and gas production in 2025 to be at the upper end of the target range, potentially 100,000 barrels per day above the midpoint. This is expected to generate an additional $2.5 billion in revenue at a Brent price of $70 per barrel. The company plans to bring three new producing units fully operational throughout 2025, including the P-78 platform, which will soon begin operations in the pre-salt with an additional 180 barrels per day capacity. The revamp of RNEST Train 1 and the new HDT unit will be fully operational by year-end, increasing S10 diesel output.

Exploration remains a cornerstone of Petrobras' long-term strategy, with approximately 50 exploratory wells planned for the coming years. The company has allocated $3 billion for the Equatorial Margin, with 15 wells planned over the next five years, and is actively acquiring seismic data in the Pelotas Basin. Petrobras is also returning to the fertilizer business, with the Paraná plant (ANSA) resuming operations in May 2025, and the Fosfam units in Bahia and Sergipe expected to restart by October 2025 following a tender process. Furthermore, the company is expanding its fleet by acquiring four range vessels and eight additional coasting vessels, a move expected to generate 44,000 new jobs and reduce financial exposure to charters. The upcoming 2026-2030 business plan, to be presented by year-end, will further detail strategies for project optimization, cost reduction, and efficiency gains in response to the evolving market.

Managing Risks and Enhancing Competitiveness

Petrobras operates in an inherently risky environment, primarily exposed to oil price volatility and geopolitical factors. The significant drop in Brent prices from $83 per barrel (strategic planning assumption) to $67-$65 per barrel necessitates a proactive response. Petrobras is addressing this by increasing production, reducing costs, and simplifying projects, ensuring competitive margins. Its E&P projects are designed to be profitable even in scenarios of up to $45 per barrel, with an average prospective breakeven Brent of $28 per barrel, demonstrating robust resilience.

Operational risks, such as scheduled and unscheduled maintenance shutdowns, impacted production in 2024 due to post-COVID backlogs, ANP requirements, and strikes. To mitigate these, Petrobras is enhancing monitoring, hiring additional maritime maintenance units, and clearing regulatory demands to ensure the longevity and safety of its assets. Environmental licensing, particularly for the sensitive Equatorial Margin, presents another challenge. Petrobras has invested BRL 150 million in an "unprecedented" emergency response plan, including fauna protection centers and specialized equipment, to meet regulatory requirements and demonstrate readiness for exploration.

In the competitive landscape, Petrobras faces a highly competitive gas market with 19 suppliers. Its strategy involves aggressive pricing and incentive policies to capture new clients, leveraging its increased gas production from the Boaventura complex. The company is also addressing supply chain and contracting challenges, which previously led to a lack of competition for EPCI contracts. By simplifying project designs, conducting international roadshows to attract more suppliers (including from China), and adjusting contract models (e.g., BOT), Petrobras aims to enhance competitiveness and reduce costs. The decline in nickel prices, a key raw material, from $48,000 per ton in 2022 to $16,000 per ton, is also expected to contribute to lower equipment costs. Petrobras' strategic positioning, supported by its deepwater technological expertise and integrated operations, allows it to maintain a strong competitive stance against global peers, even as it adapts to evolving market dynamics and regulatory pressures.

Conclusion

Petrobras stands as a compelling investment case, demonstrating robust operational execution and strategic adaptability in a volatile global energy market. The company's core investment thesis is rooted in its ability to leverage its deepwater and pre-salt technological leadership to drive significant oil and gas production growth, effectively offsetting the impact of fluctuating crude prices. This is coupled with a disciplined approach to capital allocation, project optimization, and cost reduction, ensuring profitability even in challenging scenarios.

The company's commitment to expanding its natural gas market and strategically investing in energy transition initiatives, including biofuels and carbon capture, positions it for diversified growth. While external factors like oil price volatility and regulatory hurdles present ongoing risks, Petrobras' proactive management, strong cash flow generation, and adherence to a clear capital structure and shareholder remuneration policy underscore its financial resilience. Its unique access to vast domestic resources and integrated operational model provide a distinct competitive advantage, reinforcing its market leadership in Latin America and enabling sustained value creation for its diverse stakeholder base.