The delayed third-quarter 2014 result of Brazil's state-run energy giant Petroleo Brasileiro S.A., or Petrobras (PBR) was finally released on Jan 27, 2015. The company was supposed to declare the report last November. Petrobras’ ongoing internal investigations related to multibillion money laundering and bribery cases prompted the postponement. The result does not include any picture of the scandal or estimate of its impact.
Petrobras’ third-quarter profit came at R$3,087 million, 9% lower than R$3,395 million earned in the year-earlier quarter. Earnings per ADR came in at 21 US cents (1 ADR = 2 shares) against the year-ago profit of 23 US cents. The company’s per ADR profits were also sharply below the Zacks Consensus Estimate of 29 US cents.
The deterioration can be traced back to lower crude price realization during the entire third quarter.
Petrobras’ ADR tumbled 14% on the NYSE as the company did not provide any clear picture of the financial impact of the scandal.
Petrobras’ net operating revenues of R$88,377 million were above the year-earlier level of R$77,700 million, owing to higher production.
Segmental Performance
Upstream: Petrobras’ total oil and gas production during the third quarter reached 2,746 thousand barrels per day (MBbl/d), up from 2,522 MBbl/d in the year-ago period.
Compared with the July-September quarter of 2013, the company’s Brazilian oil and natural gas production increased more than 9% to 2,531 MBbl/d, while international production came in at 215 MBbl/d (against 208 MBbl/d in the corresponding quarter last year).
During the third quarter of 2014, the average sales price of oil in Brazil decreased 8% from the year-earlier period to US$90.73 per barrel. Average sales price of international oil was down more than 2% year over year to US$84.05 per barrel. Regarding natural gas, average international sales price increased 4% from the third quarter of 2013, while domestic price was up almost 6%.
The fall in crude price in both domestic and international markets primarily pushed the upstream (or exploration & production) segment profit lower by 13% to R$15,372 million.
Lifting cost per barrel (or cost to produce each barrel of oil) moved up almost 3% in Brazil to R$35.18 but overseas costs fell 9% to US$8.84.
Downstream: During the third quarter, Petrobras’ downstream unit incurred net loss of R$7,957 million, narrower than the loss of R$8,501 million a year ago. Reduced input cost owing to lower crude price during the entire quarter helped the company to improve its refining profit.
Refining costs per barrel in Brazil were down by 2% to R$7.33. Internationally, it decreased 6% to US$4.02. Petrobras imported an average of 713,000 MBbl/d of crude oil and oil products, down 14% from the same period in the prior year.
Capital Spending & Balance Sheet
During the three months ended Sep 30, 2014, Petrobras’ capital investments and expenditures totaled R$20,129 million. At the end of the quarter, the company had cash and cash equivalents of R$62,409 million and total debt of R$261,445 million. Net debt-to-capitalization ratio was approximately 43%.
Zacks Rank & Stock Picks
Petrobras currently carries a Zacks Rank #3 (Hold), implying that to the stock will perform in line with the broader U.S. equity market over the next one to three months.
Meanwhile, better-ranked players in the energy sector include Cheniere Energy Partners LP (CQP), InterOil Corporation (IOC) and Transocean Partners LLC (RIGP). All these stocks sport a Zacks Rank #1 (Strong Buy).
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