Brazil's state-run energy giant Petroleo Brasileiro S.A. (PBR), or Petrobras S.A., announced its third quarter earnings of R$6.3 billion or R$0.49 per share, compared with R$8.6 billion or R$0.97 in the year-earlier quarter. Earnings per ADR came in at 54 cents (Exchange rate: U.S.$1.00 = R$1.83, 1 ADR = 2 shares), well behind the Zacks Consensus Estimate of 90 cents.
The company’s results were dragged down by an unfavorable exchange rate, somewhat offset by improved crude prices amid strong domestic energy demand.
Petrobras’ net operating revenues of R$64.2 billion (or approximately $35.1 billion) was up 17.3% from the third quarter 2010 level but marginally missed our projection of $35.4 billion.
Segmental Performance
Upstream: Total oil and gas production during the third quarter of 2011 reached 2,572 thousand oil-equivalent barrels per day (MBOE/d), from 2,598 MBOE/d in the previous quarter and 2,570 MBOE/d in the same period of 2010. Compared with the third quarter of 2010, Brazilian oil and natural gas production increased marginally (by 0.4%) to 2,334 MBOE/d, while international production came in at 238 MBOE/d (as against 246 MBOE/d in the year-ago period).
During the third quarter of 2011, the average sales price of oil in Brazil increased 42.7% from the year-earlier period to $102.86 per barrel. Average sales price of international oil was up 40.0% year-over-year, reaching $88.71 per barrel. Regarding natural gas, average international sales price increased 31.1% from the third quarter of 2010, while domestic price was up 39.2%.
This pushed up the upstream (or exploration & production) segment profit by 50.3% to R$10.3 billion.
Downstream: During the third quarter, Petrobras’ downstream unit incurred a net loss of R$3.2 billion, compared to a profit of R$1.3 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.
Refining costs per barrel in Brazil were up 5.3% to $5.15. Internationally, it decreased 2.3% to $4.34. Lifting cost per barrel moved up 26.7% in Brazil to $31.25, while overseas costs rose 19.8% to $7.21. Petrobras exported an average of 630,000 barrels of oil per day, 2.9% higher compared to the same period last year.
Capital Spending & Balance Sheet
During the three months ended September 30, 2011, Petrobras’ capital investments totaled R$18.8 billion. At the end of the quarter, the company had cash and cash equivalents of R$33.7 billion and net debt of R$91.8 billion. Net debt-to-capitalization ratio was approximately 22%.
About the Company
Headquartered in Rio de Janeiro, Petrobras competes with other established integrated energy firms like ExxonMobil Corp. (XOM), PetroChina Co. Ltd. (PTR), Royal Dutch Shell plc (RDS.A), etc. The company’s activities include: exploration, exploitation and production of oil from reservoir wells, shale and other rocks, and refining, processing, trade and transport of oil and oil products, natural gas and other fluid hydrocarbons, in addition to other energy-related activities.
Petrobras ADRs currently retain a Zacks #4 Rank, which translates into a short-term Sell rating. Longer-term, we are maintaining our Neutral recommendation on the stock.
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