Petrobras Misses on Earnings in Q1, Revs Fall - Analyst Blog

On May 9, 2014, Brazil's state-run energy giant Petroleo Brasileiro S.A., or Petrobras PBR, announced first-quarter profit of $2,280.0 million, down from $3,854.0 million in the year-earlier quarter. Earnings per ADR came in at 34 cents (1 ADR = 2 shares), lower than the year-ago profit of 60 cents and below the Zacks Consensus Estimate of 42 cents.

Petrobras' net operating revenues of $34,494.0 million came in below the year-earlier level of $36,345.0 million.

The week first quarter results were primarily due to significant decline in oil prices, along with lower output.

Segmental Performance

Upstream: Petrobras' total oil and gas production during the first quarter reached 2,531 thousand oil-equivalent barrels per day (MBOE/d), lower than 2,552 MBOE/d in the same period of 2013.

Compared with the first quarter of 2013, Brazilian oil and natural gas production increased 0.5% to 2,322 MBOE/d. However, international production came in at 209 MBOE/d (down from 242 MBOE/d in the year-ago period).

During the first quarter of 2014, the average sales price of oil in Brazil decreased 4.8% from the year-earlier period to $98.02 per barrel. Average sales price of international oil was down 10.7% year over year at $84.18 per barrel. Regarding natural gas, average international sales price rose 1.1% from the first quarter of 2013, while domestic price was down 2.6%.

Lower output along with increased exploration cost pushed down the upstream (or exploration & production) segment profit by 10.0% to $6,871 million.  

Lifting cost per barrel (or cost to produce each barrel of oil) moved down 4.0% in Brazil to $14.15, while overseas costs decreased 8.0% to $7.85.   

Downstream: Petrobras' downstream unit incurred a net loss of $3,140.0 million, narrower than the loss of $3,219.0 million a year ago. Petrobras was able to reduce losses on account of the recent decision by the Brazilian government to allow it to raise diesel and gasoline prices. This has helped Petrobras to shift some of the burden of rising oil costs to its consumers.

Refining costs per barrel in Brazil were down 12.0% to $2.75. Internationally, it decreased 3.0% to $3.66. Petrobras imported an average of 359,000 barrels of oil per day, 26.0% lower than the same period last year. However, oil product imports were 13.0% higher than the year-earlier period.

Capital Spending & Balance Sheet

During the three months ended Mar 31, 2014, Petrobras' capital investments and expenditures totaled $8,708.0 million. At the end of the quarter, the company had cash and cash equivalents of $30,255.0 million and net debt of $101,488.0 million. Net debt-to-capitalization ratio was approximately 39%.

Other News

Discovery of Quality Oil

Separately, Petrobras revealed that it has finished the drilling of well 4-RJS-728 situated at a water depth of roughly 2,244 meters, in the Santos Basin pre-salt area. The company has found good quality oil (27°API) in the well.

Zacks Rank & Stock Picks

Petrobras currently retains 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, one can look at better-ranked players in the energy sector like EPL Oil & Gas Inc. EPL, Encana Corporation ECA and Pembina Pipeline Corporation PBA. All these stocks sport a Zacks Rank #1 (Strong Buy).