Petrobras Terminates Natural Gas Supply Deal With Ambar

Brazil oil giant Petroleo Brasileiro S.A., aka Petrobras (NYSE:PBR) recently repealed a contract to supply natural gas to Ambar Energia – a unit of industrial conglomerate J&F Investimentos SA due to the breach of anti-corruption terms.

The contract relating to Ambar’s thermal power station, UTE Mário Covas, was entered into in mid-April. It contained a clause stating that Ambar had not paid or offered any bribes to officials to any seek undue advantage. However, Petrobras came to know of the recordings from the plea bargain agreements by J&F group executives, reflecting the breach of anti-corruption terms by the J&F group.

During contract negotiations, the price conditions Petrobras had agreed upon with Ambar were based on market criteria. However, as part of a plea bargain, J&F owners Joesley and Wesley Batista admitted that Ambar was able to secure artificially low prices for the natural gas Petrobras imported from Bolivia. Joesley Batista gave prosecutors a recording of a conversation with Brazilian President Michel Temer in which Joesley asked for help in an antitrust dispute between Ambar and Petrobras over the terms of the supply contract. Petrobras intends to seek claims of around R$ 70 million or $21.9 million from Ambar due to the alleged breach of contract.

The lawsuit emphasizes J&F's involvement in corruption scandals which is hurting its diverse range of operations, ranging from energy and food to banking and consumer goods. Last month, meat processing giant JBS – another unit of J&F group – was hit by a corruption scandal where the senior executives admitted paying bribes of R$ 600 million or $183 million to around 1,900 politicians. J&F agreed to pay a record-setting penalty of R$10.3 billion or $3.2 billion in fines to settle corruption investigations. The corruption lawsuits have hurt the vast corporate empire of J&F group raising investors’ concerns over its ability to maintain steady funding.

Zacks Rank & Key Picks

Headquartered in Rio de Janeiro, Petrobras is an integrated energy company involved in the exploration, production, refining, retailing and transportation of petroleum and its byproducts, both domestically and internationally. The company under Zacks categorized Oil & Gas Emerging Markets Integrated industry currently carries a Zacks Rank #3 (Hold).

Petroleo Brasileiro S.A.- Petrobras Price

Investors interested in the same space can consider RWE Aktiengesellschaft (OTC:RWEOY) , Atlantic Power Corporation (NYSE:AT) and CenterPoint Energy, Inc. (NYSE:CNP) as valuable picks.

RWE sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here. Atlantic Power and CenterPoint both carry a Zacks Rank #2 (Buy).

RWE is expected to report year-over-year growth of 42.45% in its earnings in 2017.

Atlantic Power is expected to report year-over-year growth of 19.54% and 183.33% in its sales and earnings respectively in 2017.

CenterPoint is expected to report year-over-year growth of 8.58% and 11.38% in its sales and earnings respectively in 2017.

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