Petroleo Brasileiro SA (PETR4), the world’s biggest oil producer in deep waters, said fourth-quarter profit dropped 19 percent, less than analysts expected, after higher fuel prices reduced refining losses.
Net income slid to 6.28 billion reais ($2.68 billion), or 48 centavos a share, from 7.8 billion reais, or 59 centavos, a year earlier, the Rio de Janeiro-based company said today in a statement. Per-share profit excluding some items beat the 41-centavo average of 12 analysts’ estimates compiled by Bloomberg.
Petrobras increased the price of gasoline by 4 percent and the price of diesel by 8 percent on Nov. 29, the first boost in nine months. The company, which subsidizes domestic fuel sales, is seeking to eliminate the gap between local and foreign prices, Chief Financial Officer Almir Barbassa said then.
“The price adjustments were quite important to minimize the effects of losses from Petrobras’s imports,” Lucas Brendler, an analyst at Geracao Futuro Corretora in Porto Alegre, Brazil, said in a phone interview ahead of the report.
Gasoline and diesel imports are curbing profit as Petrobras pays more than what it receives from domestic distributors for the fuel at subsidized prices. The government, which controls Petrobras with a majority of voting shares, has prevented the company from increasing prices enough to erase the losses as it seeks to keep inflation in check.
Fuel Imports
The fourth-quarter gap between international and domestic prices was 11 percent for gasoline and 19 percent for diesel, according to Deutsche Bank SA estimates.
Petrobras ran its 11 crude refineries at an average 92 percent of capacity last year as it boosted output in an attempt to lower reliance on imported fuel. The over-stretching of workers and machinery was one of the reasons behind fires at two plants in two-and-a-half weeks between December and January, according to the oil union.
The refining division, which has two plants under construction, accounts for 34 percent of Petrobras’s $237 billion, five-year investment plan. The bulk of the plan is focused on the exploration and production division that’s seeking to develop pre-salt oil reserves offshore Brazil.
Refining Losses
The company’s $112 billion in debt makes it the most indebted oil company in the world, according to data compiled by Bloomberg. Given the financial needs to develop reserves, Petrobras will have to include “higher debt issuance needs” in its updated long-term plan, Christopher Buck, an analyst at Barclays Plc, said in a note to clients.
Higher debt is coupled with the company’s expectation that it won’t generate positive cash flow until 2016, while posting the highest negative cash flow among global oil producers. The refining division lost $35 billion since the government started using the company to subsidize fuel prices in 2011.
In October, Petrobras presented a proposal to the board to create a methodology for adjusting prices automatically. On Nov. 29, the board authorized the first fuel-price increase in nine months without divulging a formula for future adjustments. The stock plunged 9.2 percent the next trading day.
In the face of concerns over weak economic growth this year in Brazil, the government is unlikely to change its stance on fuel prices any time soon as it prepares for presidential elections in October, Joao Castro Neves, an analyst at Eurasia Group, said by telephone from New York.
Slowing Economy
Brazil’s government expects the economy to grow 2.5 percent in 2014 and inflation to reach 5.9 percent.
After the stock slumped 18 percent in the past year, 14 of 19 analysts covering the company recommend buying. The other five have a hold rating.
Fourth-quarter “earnings could be a short-term positive for the stock, even though debt ratios are expected to continue deteriorating,” Marcus Sequeira, an analyst at Deutsche Bank AG, who has a hold recommendation, said in a note to clients before the report.
Source: Bloomberg.net
