Petróleo Brasileiro S.A. or Petrobras PBR recently agreed to pay a fine of $853.2 million to the government bodies of Brazil and United States, effectively ending the long-running Lava Jato (Car Wash) scandal investigation.


It started with bribery from the company’s former authoritative members, who concealed payments from investors as well as regulators and infringed several anti-corruption laws. The case shook the state-run energy major to the core, which resulted in high-debt burden. The incident was also the cause of the imprisonment of the former Brazilian president, Luiz Inácio Lula da Silva.

Financial Details

Per the settlement, the U.S. Justice Department (DOJ) and the Securities and Exchange Commission (SEC) will each receive 10% ($85.3 million) of the settlement amount. The remaining 80% ($682.6 million) will go in a special fund in Brazil, which will be allocated toward social causes by the federal prosecutors.

Earlier this year, Petrobras agreed to pay $2.95 billion to settle class-action lawsuits filed by investors. The payout marked the biggest payment in the United States by a foreign entity and one of the largest securities class action settlements in the country’s history.

Notably, the company’s third-quarter 2018 financial statement will incorporate the $853.2 million (around R$3.6 billion) settlement, including taxes.

Significance of the Settlement

Petrobras is the largest publicly-traded Latin American oil company, which dominates Brazil’s oil and gas sector. The company produces most of the country’s crude oil and natural gas as well as accounts for almost the entire refining capacity. The company suffered for a long time, legally and politically, due to corruption. With the settlement, Petrobras ends the bitter chapter as well as overcomes the related dilemma and uncertainty. The settlement also effectively ends “costs of potential prosecution and protracted litigation in the United States”. It will enable the company to focus on its business and operations.

Witnessing Improvement?

As far as debt — stemming from the scandal — is concerned, the company’s operational improvement and rising crude prices have helped it reduce that burden substantially. Currently, the company has a net debt of $73,662 million, down from the $84,871 million at the end of 2017 and $96,381 million as of Dec 31, 2016. The latest settlement, which comes at a cost, is expected to remove uncertainty regarding Petrobras’ liabilities, enabling it to better plan how it uses the future cash flow.

Zacks Rank and Other Stocks to Consider

Currently, Petrobras sports a Zacks Rank #1 (Strong Buy). Investors interested in the Oil and Gas sector can opt for other top-ranked stocks like Magnolia Oil & Gas Corp MGY, Oasis Midstream Partners LP OMP and Subsea 7 SA SUBCY, each sporting a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Houston, TX-based Magnolia is an upstream energy company. The company’s top line for 2018 is expected to reach $934.9 million, with earnings estimates pegged at $1.50 per share.

Houston, TX-based Oasis Midstream is a master limited partnership. Its bottom line for 2018 is expected to surge more than 300% year over year.

Luxembourg-based Subsea is an oilfield service provider. Its sales for the third quarter are expected to improve 4.1% year over year.

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Petroleo Brasileiro S.A.- Petrobras (PBR): Free Stock Analysis Report
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