Petrobras Q1 Results: Profit Surge vs. Capital Expenditure Headwinds – A High-Reward, High-Risk Opportunity?

Petrobras delivered a mixed performance in its Q1 2025 earnings report, with a 22.7% year-over-year (YoY) jump in EPS to $0.92 and production growth of 5.4% to 2.77 million barrels of oil equivalent per day (boed). Yet these positives clash with elevated capital expenditures (CapEx), legal risks, and macroeconomic pressures that threaten to undercut shareholder value. For investors, the question is clear: Does the profit surge justify a bet on Petrobras’ 11.56% dividend yield and undervalued equity, or are the headwinds too great?

The Profit Surge: Operational Strength Amid Weakness

Petrobras’ operational improvements in key Brazilian basins, such as the Búzios field and the Almirante Tamandaré FPSO, drove crude output to 2.21 million barrels per day (bpd) in Brazil, offsetting natural field declines.

The company also secured new export deals, including a 6-million-barrel annual agreement with India, though total exports fell 10.4% YoY due to reduced shipments to China and the U.S.

However, revenue declined 8.7% YoY to $21.7 billion, as Brent crude prices fell to $60/barrel, squeezing margins. Analysts at Zacks note that earnings estimates have been cut by 14% over the past 30 days, reflecting skepticism about Petrobras’ ability to sustain profitability in a weakening oil market.

CapEx Headwinds: The Dividend Dilemma

The real concern lies in Petrobras’ $3.8 billion Q1 CapEx, a 20% YoY increase, which analysts at BTG Pactual, UBS, and Santander warn could starve dividend growth.

• BTG Pactual: Warns that rising CapEx risks dividend cuts, urging investors to monitor cash flow sustainability.
• UBS BB: Calls CapEx the “big question” for Q2, noting that Q4 2024 investments (the “rollover effect”) may further pressure near-term margins.
• Santander: Projects a 12% YoY rise in Q1 net income to $5.39 billion but cautions that legal costs and CapEx could dilute returns.

With $27 billion in debt and a -28% retained earnings, Petrobras faces a stark choice: prioritize debt reduction or maintain its sky-high dividend yield. The May 20 and June 20 dividend installments totaling $0.735/share (adjusted for the SELIC rate) hinge on whether management can balance these priorities.

Legal Risks and Valuation Discount

Petrobras’ stock trades at a forward P/E of 4.1x, a fraction of peers like ExxonMobil (15x) and Chevron (15x), due to unresolved legal liabilities. The $283 million settlement with EIG Energy in March 2025—linked to the collapsed FIP Sondas fund—dropped shares 2% and highlighted lingering exposure to past corruption scandals.

Yet this discount creates an opportunity: if Petrobras can resolve legal overhangs, its $72.76 billion market cap could surge. The average 12-month price target of $43.16 implies a 30.66% upside, while GuruFocus’ conservative $34.62 estimate still leaves room for gains if oil prices stabilize.

Oil Prices: The X-Factor

Petrobras’ fate is tied to oil prices. A $10 rebound in Brent to $70/barrel would boost revenue by ~4%, while a prolonged slump below $60 could trigger another dividend scare.

The Investment Case: High-Risk, High-Reward

Petrobras is a contrarian play for investors willing to bet on:
1. Near-term catalysts: The May 13 Q1 earnings webcast and dividend payouts could spark a short-covering rally.
2. Valuation upside: The 4.1x P/E offers asymmetry if legal risks subside or oil prices recover.
3. Dividend yield: The 11.56% payout—among the highest in the sector—provides income despite risks.

The Bottom Line

Petrobras’ Q1 results present a compelling but fraught opportunity. The profit surge and dividend yield make it a must-watch for income-seeking investors, while its valuation discount and operational momentum suggest a rebound is possible. However, CapEx pressures, legal liabilities, and oil price volatility mean this is not a buy-and-forget stock.

For aggressive investors with a 6–12 month horizon, Petrobras offers a high-reward, high-risk bet. The May 20 dividend payment and Q2 production updates will be critical catalysts—act swiftly if you’re ready to embrace the risk.