Markets

Petrobras (PBR) Q2 Loss Wider Than Expected on Oil Slump

Brazil's state-run energy giant Petroleo Brasileiro S.A., or Petrobras PBR announced second-quarter adjusted loss of 38 cents per ADS, wider than the Zacks Consensus Estimate of a loss of 31 cents. The company’s bottom line was also a reversal from the year-ago quarter’s profit of 72 cents. The unfavorable comparison primarily stems from lower average realized commodity prices, partly offset by a decline in lifting costs and robust fuel export volumes to China.

Petrobras’ adjusted EBITDA slumped to $4,785 million from $8,326 million a year ago. Meanwhile, the company’s revenues of $9,481 million came in below the Zacks Consensus Estimate of $10,108 million and fell from the year-earlier sales of $18,502 million.

Petrobras, one of the largest oil and gas firms in the world, reiterated that production is likely to be lower in the second half of 2020 due to scheduled maintenance stoppages but maintained the average annual 2,700 MBOE/d output target from domestic fields.  

The company further informed that it expects to end negotiations related to divestment of the 323,000 barrels per day RLAM refinery based in northeastern Brazil shortly. Further, Petrobras is set to proceed with the public offering of shares of the pre-salt gas pipelines.
 

Petroleo Brasileiro S.A. Petrobras Price, Consensus and EPS Surprise

Petroleo Brasileiro S.A. Petrobras Price, Consensus and EPS Surprise

Petroleo Brasileiro S.A. Petrobras price-consensus-eps-surprise-chart | Petroleo Brasileiro S.A. Petrobras Quote

Coming back to earnings, let's take a deeper look at the recent performances from Petrobras’ two main segments: Upstream (Exploration & Production) and Downstream (or Refining, Transportation and Marketing).

Upstream: The Rio de Janeiro-headquartered company’s average oil and gas production during the second quarter reached 2,802 thousand barrels of oil equivalent per day (MBOE/d) — 80% liquids — up from 2,633 MBOE/d in the same period of 2019.

Compared with the second quarter of 2019, Brazilian oil and natural gas production — constituting more than 98% of the overall output — increased 8% to 2,757 MBOE/d. The improvement — despite coronavirus-related disruptions — was driven by new start-ups and the ramp-up of production in the Búzios field.

In the April to June period, the average sales price of oil in Brazil fell 63% from the year-earlier period to $23.98 per barrel. The falling crude prices had a negative effect on upstream segment earnings, which was partly offset by higher production.

Overall, the segment’s revenues declined to $5,165 million in the quarter under review from $12,660 million in the year-ago period. As far as the bottom line is concerned, even a tight leash on pre-salt lifting costs, which fell 30.8% from the second quarter of 2019 to $4.17 per barrel, was unable to provide support. In fact, the upstream unit recorded a net income of $1,187 million, down from the second-quarter 2019 earnings of $3,516 million.

Downstream: Revenues from the segment totaled $8,261 million, more than halving from the year-ago figure of $16,675 million. Worse, Petrobras' downstream came up with loss of $566 million in contrast to the year-ago profit of $286 million, primarily due to lower sales volume of jet fuel, diesel and gasoline on account of coronavirus-related demand slump. This was partly offset by higher exports, which were up 65.4% year over year. In particular, the Rio de Janeiro-headquartered company’s oil exports to China remained strong. This was mainly on account of a revival in demand from Chinese refineries.

Costs

During the period, Petrobras’ sales, general and administrative expenses came in at $1,537 million, 2.9% higher than the year-ago period. Selling expenses also shot up  from $935 million a year ago to $1,246 million. Consequently, total operating expenses came in at $1,416 million. In the corresponding quarter last year, the company had other income of $4,016 million, which in turn had resulted in negative operating expense of $2,183 million. This meant that the company reported operating income of $2,001 million in the second quarter of 2020 compared with $9,885 million a year ago.

Financial Position

During the three months ended Jun 30, 2020, Petrobras’ capital investments and expenditures totaled $1,937 million compared with $2,553 million in the prior-year quarter.

Importantly, the company generated positive free cash flow for the 21st consecutive quarter, though the metric fell to $3,012 million from $3,172 million recorded in last year’s corresponding period.

At the end of the second quarter, Petrobras had net debt of $71,222 million, less than $83,674 million a year ago and $73,131 million as of Mar 31, 2020. The company ended the quarter with cash and cash equivalents of $19,470 million.

Meanwhile, Petrobras’ net debt to trailing 12 months EBITDA ratio improved to 2.34 from 2.71 in the previous year. However, it deteriorated from 2.15 at the end of the first quarter.

Zacks Rank & Key Picks

Petrobras carries a Zacks Rank #3 (Hold).

Meanwhile, investors interested in the energy space could look at some better options like USA Compression Partners, LP USAC, Bonanza Creek Energy, Inc. BCEI and Royal Dutch Shell plc RDS.A. USA Compression Partners sports a Zacks Rank #1 (Strong Buy), while Bonanza Creek and Royal Dutch Shell carry a Zacks Rank #2 (Buy).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

USA Compression Partners has a 100% track of outperforming estimates over the last four quarters at an average rate of 162.5%.

Bonanza Creek Energy has an excellent earnings surprise history having surpassed estimates in each of the last four quarters, the average being 8.7%.

Over 30 days, the Hague, Netherlands-based Shell has seen the Zacks Consensus Estimate for 2020 surge 141.9%.

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