Brazil's state-run energy giant Petroleo Brasileiro S.A., or Petrobras (PBR - Analyst Report), announced fourth quarter profit of R$7.7 billion or R$0.59 per share, compared with R$5.0 billion or R$0.39 in the year-earlier quarter. Earnings per ADR came in at 58 cents (1 ADR = 2 shares), above the year-ago profit of 44 cents and in line with the Zacks Consensus Estimate.
The company’s results were helped by higher financial gains and lower taxes, partially offset by rising operational costs, weak production, unfavorable exchange rate fluctuations and high priced fuel imports to meet the country’s growing demand.
Petrobras’ net operating revenues of $35.7 billion surpassed the Zacks Consensus Estimate of $34.9 billion but were below the year-earlier level of $36.3 billion amid higher domestic fuel prices.
Upstream: Total oil and gas production during the fourth quarter reached 2,614 thousand oil-equivalent barrels per day (MBOE/d), down from 2,670 MBOE/d in the same period of 2011.
Compared with the fourth quarter of 2011, Brazilian oil and natural gas production decreased 1.6% to 2,378 MBOE/d, while international production came in at 236 MBOE/d (as against 254 MBOE/d in the year-ago period).
For the year ended Dec 31, 2012, production of natural gas and crude oil reached 2,598 MBOE/d, down 0.9% from 2011.
During the fourth quarter of 2012, the average sales price of oil in Brazil decreased 2.5% from the year-earlier period to $100.56 per barrel. Average sales price of international oil was down 3.8% year over year, reaching $93.43 per barrel. Regarding natural gas, average international sales price fell 35.2% from the fourth quarter of 2011, while domestic price was down 13.1%.
Exploration costs skyrocketed 43.3% to R$2.2 billion. This pushed down the upstream (or exploration & production) segment profit by 4.5% to $8.6 billion.
Lifting cost per barrel (or cost to produce each barrel of oil) moved up 11.6% in Brazil to $13.94, while overseas costs jumped 47.3% to $10.34.
Downstream: During the fourth quarter, Petrobras’ downstream unit incurred a net loss of $4.2 billion, significantly wider than the loss of $3.3 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 Brazilian government has come up with several decision to hike domestic fuel prices during the last few quarters, those were not enough to offset Petrobras’ refining losses. Higher product import cost – reflecting unfavorable currency movements – also hampered results.
Refining costs per barrel in Brazil were down by 20.0% to $3.81. Internationally, it increased 7.3% to $4.87. Petrobras imported an average of 806,000 barrels of oil per day, 4.1% higher compared to the same period last year.
Capital Spending & Balance Sheet
During the three months ended Dec 31, 2012, Petrobras’ capital investments totaled R$24.3 billion, bringing the full-year spending to R$84.1 billion. At the end of the quarter, the company had cash and cash equivalents of R$27.6 billion and net debt of R$147.8 billion. Net debt-to-capitalization ratio was approximately 30%.
As of year-end 2012, the company – Latin America’s largest – had approximately 16.44 billion barrels of oil equivalent (BBOE) in proved reserves (as per SPE or Society of Petroleum Engineers guidelines).
Stocks to Consider
Petrobras – which aims to surpass Exxon Mobil Corporation (XOM - Analyst Report) by 2020 to become the world’s largest oil producer – 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, one can look at France-based integrated supermajor Total SA (TOT - Analyst Report) and domestic energy explorer Cabot Oil & Gas Corporation (COG - Analyst Report) as attractive investments. Both these companies – sporting Zacks Rank #1 (Strong Buy) – offers value and are worth accumulating at current levels.