Brazil's state-run energy giant Petroleo Brasileiro S.A., or Petrobras (PBR) announced its fourth quarter earnings of R$5.0 billion or R$0.39 per share, compared with R$10.6 billion or R$1.07 in the year-earlier quarter. Earnings per ADR came in at 42 cents (Exchange rate: U.S.$1.00 = R$1.86, 1 ADR = 2 shares), well behind the Zacks Consensus Estimate of 94 cents.
The company’s results were dragged down by rising operating costs and impairment charges.
Petrobras’ net operating revenues of R$65.3 billion (or approximately $35.0 billion) was up 20.3% from the fourth quarter 2010 level and also marginally beat our projection of $34.3 billion, reflecting improved crude prices amid strong domestic energy demand.
For full-year 2011, Petrobras earned R$33.3 billion or R$2.55 per share on revenues of R$244.2 billion.
Segmental Performance
Upstream: Total oil and gas production during the fourth quarter of 2011 reached 2,670 thousand oil-equivalent barrels per day (MBOE/d), from 2,581 MBOE/d in the previous quarter and 2,628 MBOE/d in the same period of 2010.
Compared with the fourth quarter of 2010, Brazilian oil and natural gas production increased 1.3% to 2,416 MBOE/d, while international production came in at 254 MBOE/d (as against 244 MBOE/d in the year-ago period).
For the year ended December 31, 2011, production of natural gas and crude oil reached 2,622 MBOE/d, up 1.5% from 2010.
During the fourth quarter of 2011, the average sales price of oil in Brazil increased 29.4% from the year-earlier period to $103.10 per barrel. Average sales price of international oil was up 31.4% year-over-year, reaching $97.11 per barrel. Regarding natural gas, average international sales price increased 44.0% from the fourth quarter of 2010, while domestic price was up 29.2%.
This pushed up the upstream (or exploration & production) segment profit by 31.6% to R$10.3 billion.
Lifting cost per barrel (or cost to produce each barrel of oil) moved up 21.4% in Brazil to $12.49, while overseas costs rose 3.2% to $7.02.
Downstream: During the fourth quarter, Petrobras’ downstream unit incurred a net loss of R$4.4 billion, compared to a profit of R$1.4 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 Brazilian government came up with a decision to hike domestic fuel prices during late 2011, it was not enough to offset Petrobras’ refining losses.
Refining costs per barrel in Brazil were down marginally (by 0.6%) to $4.76. Internationally, it increased 11.3% to $4.54. Petrobras exported an average of 641,000 barrels of oil per day, 2.6% lower compared to the same period last year.
Capital Spending & Balance Sheet
During the three months ended December 31, 2011, Petrobras’ capital investments totaled R$21.7 billion, bringing the full-year spending to R$72.5 billion. At the end of the quarter, the company had cash and cash equivalents of R$35.7 billion and net debt of R$103.0 billion. Net debt-to-capitalization ratio was approximately 24%.
Petrobras plans to spend R$87.5 billion in 2012, of which some 48% will be allocated towards exploration and production.
Proven Reserves
As of year-end 2011, the company – Latin America’s largest – had approximately 16.4 billion barrels of oil equivalent (BBOE) in proved reserves (as per SPE or Society of Petroleum Engineers guidelines), 2.7% above year-ago levels.
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 #2 Rank, which translates into a short-term Buy rating. Longer-term, we are maintaining our Neutral recommendation on the stock.
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