Back to top

Analyst Blog

This page is temporarily not available.  Please check later as it should be available shortly. If you have any questions, please email customer support at support@zacks.com or call 800-767-3771 ext.  9339.

Brazil's state-run energy giant Petroleo Brasileiro S.A., or Petrobras (PBR - Analyst Report) announced third quarter profit of R$5.6 billion or R$0.43 per share, compared with earnings of R$6.3 billion or R$0.49 in the year-earlier quarter. Earnings per ADR came in at 42 cents (1 ADR = 2 shares), below the Zacks Consensus Estimate of 67 cents. During the corresponding period last year, Petrobras earned 60 cents per ADR.

Petrobras’ net operating revenues of $36.4 billion were down 6.3% from the third quarter 2011 level.

The company’s results were dragged down by persistent weakness in its refining unit.

Segmental Performance

Upstream: Total oil and gas production during the third quarter of 2012 reached 2,523 thousand oil-equivalent barrels per day (MBOE/d), from 2,579 MBOE/d in the previous quarter and 2,581 MBOE/d in the same period of 2011.

Compared with the third quarter of 2011, Brazilian oil and natural gas production decreased 2.3% to 2,281 MBOE/d, while international production came in at 242 MBOE/d (as against 247 MBOE/d in the year-ago period).

During the third quarter of 2012, the average sales price of oil in Brazil fell 1.0% from the year-earlier period to $101.80 per barrel. Average sales price of international oil was up 1.9% year over year, reaching $90.42 per barrel. Regarding natural gas, average international sales price increased 9.6% from the third quarter of 2011, while domestic price was down 12.6%.

Exploration costs skyrocketed 64.6% to R$1.3 billion.

Notwithstanding the lower volumes and higher costs, the company’s upstream (or exploration & production) segment profit improved by 4.5% to R$10.8 billion. This can be attributed to lower write-offs associated with unproductive or sub-commercial wells.

Downstream: During the third quarter, Petrobras’ downstream unit incurred a net loss of R$5.7 billion, much wider than the loss of R$3.2 billion a year ago. This was due to the company’s inability to shift the burden of rising oil costs to its consumers, as mandated by the state policy of keeping a lid on gasoline and diesel prices.

Though the company raised its wholesale fuel price in late June, it was not enough to offset Petrobras’ refining losses. Higher product import cost also hampered results.

Refining costs per barrel in Brazil were down 10.3% to $4.62. Internationally, it decreased 1.4% to $4.28. Petrobras exported an average of 563,000 barrels of oil per day, 13.3% lower compared to the same period last year.

Capital Spending & Balance Sheet

During the three months ended September 30, 2012, Petrobras’ capital investments totaled R$21.1 billion. At the end of the quarter, the company had cash and cash equivalents of R$30.2 billion and net debt of R$133.9 billion. Net debt-to-capitalization ratio was approximately 28%.

Rating & Recommendation

Petrobras – which aims to surpass Exxon Mobil Corporation (XOM - Analyst Report) by 2020 to become the world’s largest oil producer – currently retains a Zacks #4 Rank (short-term Sell rating). We are also maintaining our long-term Underperform recommendation on the ADR.

The Rio de Janeiro-headquartered company – whose second quarter loss was its first in 13 years – has been reeling from the effects of rising costs and heavy fuel imports. We also remain concerned about Petrobras’ huge investment requirements, the possibility of heightened state interference and caps on local fuel prices. Partially offsetting these negatives are the company’s strong pipeline of development projects and impressive exploration successes, as well as exposure to Brazil’s economic growth and huge pre-salt oil reserves.

Please login to Zacks.com or register to post a comment.

New to Zacks?

Start Here

Zacks Investment Research

Close

Are you a new Zacks Member or a visitor to Zacks.com?

Top Zacks Features

Learn more

Start for as little as $4.50 per trade.

My Portfolio Tracker

Is it Time to Sell?

One of the most important steps you can take today is to set up your portfolio tracker on Zacks.com. Once you do, you'll be notified of major events affecting your stocks and/or funds with daily email alerts.

More Zacks Resources

Zacks Rank Home - Evaluate your stocks and use the Zacks Rank to eliminate the losers and keep the winners.

Mutual Fund Rank Home - Evaluate your funds with the Mutual Fund Rank for both your personal and retirement funds.

Stock/Mutual Fund Screening - Find better stocks and mutual funds. The ones most likely to beat the market and provide a positive return.

My Portfolio - Track your Portfolio and find out where your stocks/mutual funds stack up with the Zacks Rank.

Zacks #1 Rank Top Movers for Zacks #1 Rank Top Movers

Company Symbol Price %Chg
DIXIE GRP IN DXYN 15.84 +7.90%
BOFI HLDG IN BOFI 85.30 +4.97%
RAMBUS INC RMBS 12.31 +4.41%
VIPSHOP HOLD VIPS 148.73 +4.35%
NETFLIX INC NFLX 345.74 +4.32%