Brazil's state-run energy giant Petroleo Brasileiro S.A., or
Petrobras
(
PBR
) announced third quarter profit of R$5.6 billion or R$0.43 per
share, compared with earnings of R$6.3 billion or R$0.49 in the
year-earlier quarter. Earnings per ADR came in at 42 cents (1 ADR
= 2 shares), below the Zacks Consensus Estimate of 67 cents.
During the corresponding period last year, Petrobras earned 60
cents per ADR.
Petrobras' net operating revenues of $36.4 billion were down 6.3%
from the third quarter 2011 level.
The company's results were dragged down by persistent weakness in
its refining unit.
Segmental Performance
Upstream:
Total oil and gas production during the third quarter of 2012
reached 2,523 thousand oil-equivalent barrels per day (MBOE/d),
from 2,579 MBOE/d in the previous quarter and 2,581 MBOE/d in the
same period of 2011.
Compared with the third quarter of 2011, Brazilian oil and
natural gas production decreased 2.3% to 2,281 MBOE/d, while
international production came in at 242 MBOE/d (as against 247
MBOE/d in the year-ago period).
During the third quarter of 2012, the average sales price of oil
in Brazil fell 1.0% from the year-earlier period to $101.80 per
barrel. Average sales price of international oil was up 1.9% year
over year, reaching $90.42 per barrel. Regarding natural gas,
average international sales price increased 9.6% from the third
quarter of 2011, while domestic price was down 12.6%.
Exploration costs skyrocketed 64.6% to R$1.3 billion.
Notwithstanding the lower volumes and higher costs, the company's
upstream (or exploration & production) segment profit
improved by 4.5% to R$10.8 billion. This can be attributed to
lower write-offs associated with unproductive or sub-commercial
wells.
Downstream:
During the third quarter, Petrobras' downstream unit incurred a
net loss of R$5.7 billion, much wider than the loss of R$3.2
billion a year ago. This was due to the company's inability to
shift the burden of rising oil costs to its consumers, as
mandated by the state policy of keeping a lid on gasoline and
diesel prices.
Though the company raised its wholesale fuel price in late June,
it was not enough to offset Petrobras' refining losses. Higher
product import cost also hampered results.
Refining costs per barrel in Brazil were down 10.3% to $4.62.
Internationally, it decreased 1.4% to $4.28. Petrobras exported
an average of 563,000 barrels of oil per day, 13.3% lower
compared to the same period last year.
Capital Spending & Balance Sheet
During the three months ended September 30, 2012, Petrobras'
capital investments totaled R$21.1 billion. At the end of the
quarter, the company had cash and cash equivalents of R$30.2
billion and net debt of R$133.9 billion. Net
debt-to-capitalization ratio was approximately 28%.
Rating & Recommendation
Petrobras - which aims to surpass
Exxon Mobil Corporation
(
XOM
) by 2020 to become the world's largest oil producer - currently
retains a Zacks #4 Rank (short-term Sell rating). We are also
maintaining our long-term Underperform recommendation on the ADR.
The Rio de Janeiro-headquartered company - whose second quarter
loss was its first in 13 years - has been reeling from the
effects of rising costs and heavy fuel imports. We also remain
concerned about Petrobras' huge investment requirements, the
possibility of heightened state interference and caps on local
fuel prices. Partially offsetting these negatives are the
company's strong pipeline of development projects and impressive
exploration successes, as well as exposure to Brazil's economic
growth and huge pre-salt oil reserves.
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