Brazil's state-run energy giant Petroleo Brasileiro S.A., or Petrobras PBR announced second-quarter profit of $171 million, reflecting a steep fall from $2,225 million in the year-earlier quarter. Earnings per ADR came in at 2 cents (1 ADR = 2 shares), significantly lower than the year-ago profit of 18 cents and below the Zacks Consensus Estimate of 23 cents.
Petrobras’ net operating revenues of $26,021 million were also well below the year-earlier level of $36,910 million.
Significant lower crude price realizations along with considerably higher tax expenses led to the underperformance.
Segmental Performance
Upstream: Petrobras’ total oil and gas production during the second quarter was 2,765 thousand oil-equivalent barrels per day (MBOE/d), up from 2,600 MBOE/d in the corresponding quarter of 2014.
From the second quarter of 2014, Brazilian oil and natural gas production increased 8% to 2,574 MBOE/d. However, international production came in at 191 MBOE/d, lower than 217 MBOE/d in the year-ago period.
The average sales price of oil in Brazil plunged over 47% from the year-earlier quarter to $52.14 per barrel. Moreover, the average sale price of international oil was down 31.2% year over year to $60.52 per barrel.
Decreased price realization pushed down the upstream (or exploration & production) segment profit by 62.1% year over year to $2,798 million. To some extent, the downside was arrested by a 42.8% decrease in Petrobras’ exploration costs, which totaled $462 million.
Average international natural gas sales price increased 11.3% from the second quarter of 2014, but domestic price was down 20.8%.
Lifting cost per barrel (or cost to produce each barrel of oil) was down 12.8% year over year in Brazil to $12.71, however overseas costs decreased 19.8% to $7.16.
Downstream: During the second quarter, Petrobras’ downstream unit generated a net profit of $2,595 million as compared to the loss of $2,653 million a year ago. The improvement was owing to soft crude prices that led to the decreased input cost for the downstream activities like refining.
Refining costs per barrel in Brazil were down by 10.2% year over year to $2.64. However, internationally, the price was $4.08, up 8.5% from the previous quarter.
Petrobras imported an average of 305,000 barrels of oil per day, 42.9% lower than the comparable quarter last year. Moreover, oil product imports were 22.6% less than the year-earlier quarter.
Expenses
Other tax expenses during second-quarter 2015 came at $1,289, much higher than only $140 million in the year-ago quarter.
Overall expenditure was $5,233 million against $4,471 million in the April to June quarter of 2014.
Capital Spending & Balance Sheet
During the three months ended Jun 30, 2015, Petrobras’ capital investments and expenditures totaled $5,968 million. At the end of the quarter, the company had cash and cash equivalents of $26,161 million and net debt of $104,400 million. Net debt-to-capitalization ratio was approximately 51%.
Zacks Rank & Stock Picks
Petrobras currently carries a Zacks Rank #3 (Hold), implying that it is expected to perform in line with the broader U.S. equity market over the next one to three months.
Meanwhile, some better-ranked players in the energy sector are Seadrill Partners LLC SDLP, Valero Energy Partners LP VLP and CVR Refining LP CVRR. Each of these stocks sports a Zacks Rank #1 (Strong Buy).
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