Bloomberg News

Petrobras Profit Slides 26% on Currency, Higher Fuel Imports

November 15, 2011

Nov. 14 (Bloomberg) -- Petroleo Brasileiro SA, Brazil’s state-controlled oil producer, said third-quarter profit fell 26 percent as rising domestic demand forced it to increase imports and a weaker local currency boosted costs.

Net income dropped to 6.34 billion reais ($3.6 billion), or 49 centavos a share, from 8.57 billion reais, or 97 centavos, a year ago, the Rio de Janeiro-based company said late Nov. 11 in a statement. Per-share profit excluding some items beat the 42- centavo average estimate of four analysts in a Bloomberg survey.

Petrobras has boosted imports of gasoline this year amid rising domestic demand that outpaced capacity at its refineries and lower-than-expected output of ethanol, an alternative to gas. Profit was also curbed by a weaker Brazilian real that increased costs to import and made the company’s foreign-currency debt more expensive.

“The exchange rate reduced the results a lot in this quarter,” Chief Financial Officer Almir Barbassa told reporters in Rio de Janeiro on Nov. 11. “From a shareholder’s point of view for this individual quarter, the investor was hurt.”

The company’s gasoline imports quadrupled this year to about 30,000 barrels a day, Paulo Roberto Costa, refining and transportation director, said Oct. 25.

“Diesel and gasoline imports definitely reduced profitability,” Auro Rozenbaum, an analyst at Banco Bradesco SA, said before the results were announced. He rates the stock “outperform” and doesn’t own any. “Profitability for the company was compressed.”

Supply Unit Loss

The company reported a 3.12 billion-real loss in its supply business, compared with a 1.3 billion-real gain a year earlier, as imported fuel accounted for a greater portion of sales and average export prices fell. Petrobras also had a financial expense of 5.28 billion reais in the quarter.

Brazil’s real slumped 17 percent in the quarter, the worst performer against the dollar of the 16 most-traded currencies tracked by Bloomberg, increasing the value of Petrobras’s dollar-denominated debt in local-currency terms.

“Foreign-currency fluctuations were a wild card,” said Gianna Bern, president of Chicago-based risk-management adviser Brookshire Advisory and Research. “Over the longer term, they still have one of the best reserve stories in the industry.”

Gasoline Prices

Petrobras increased gasoline prices 10 percent and diesel prices 2 percent on Nov. 1 to reduce the discount with international prices, the first increase in more than three years. The price rise reduced the discount on gasoline to 2 percent from 15 percent and the diesel discount to 7 percent from 13 percent, Bank of America analyst Frank McGann said in an Oct. 31 research report.

Crude oil for December delivery rose $1.21 to close at $98.99 a barrel on the New York Mercantile Exchange on Nov. 11, the highest settlement since July 26. Oil increased 5 percent last week.

Petrobras’s production rose 1.2 percent in the first nine months of this year, the slowest rate since 2007, according to information on the company’s website. Petrobras aims to more than double production to 6.4 million barrels a day in 2020.

The company said it had output of 2.57 million barrels a day in the third quarter.

Petrobras is investing $224.7 billion over five years to build refineries, develop deep-water fields and ramp up output at Lula, the largest discovery in Brazil’s history. Petrobras is spending more than any other major oil company as it develops fields as many as four miles below the ocean floor that are trapped under a layer of salt.

Petrobras rose 2.1 percent to 21.96 reais in Sao Paulo trading Nov. 11. The earnings report was released after the end of regular trading.

--Editors: Jessica Brice, Robin Saponar.

To contact the reporter on this story: Peter Millard in Rio de Janeiro at Pmillard1@bloomberg.net

To contact the editor responsible for this story: Dale Crofts in Buenos Aires at dcrofts@bloomberg.net


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