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Petrobras Q4 Loss Wider than Expected on Low Oil Prices

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Brazil's state-run energy giant, Petroleo Brasileiro S.A., or Petrobras (PBR - Free Report) , announced fourth-quarter 2015 loss of $9,421 million, narrower than $9,722 million loss incurred in the year-earlier quarter. Loss per ADR came in at $1.44 (1 ADR = 2 shares) against the year-ago loss of $1.5. Massive progress made by the downstream business led to the improvement.

However, the company’s per ADR loss came much wider than the Zacks Consensus Estimate of loss of 4 cents, owing to significant fall in realized oil and gas prices that hurt the company’s upstream operation. Following this, Petrobras ADRs fell almost 5% in after-hour trading on the NYSE.

Moreover, Petrobras’ net operating revenue of $22,147 million was much below the year-earlier level of $33,409 million.  

Segmental Performance

Upstream: Petrobras’ total oil and gas production during the fourth quarter totaled 2,777 thousand barrels per day (MBbl/d), slightly down from 2,799 MBbl/d recorded in the year-ago quarter.  

Compared with the Oct-Dec quarter of 2015, the company’s Brazilian oil and natural gas production decreased marginally by 0.7% to 2,585 MBbl/d, while international production came in at 192 MBbl/d (against 196 MBbl/d in the corresponding period last year).

During the fourth quarter, the average sales price of oil in Brazil decreased 49.6% from the year-earlier period to $33.50 per barrel. Average sales price of international oil was down 33.1% year over year to $49.28 per barrel. Moreover, domestic and international natural gas prices were down 28.7% and 11.1%, respectively, from the fourth quarter of 2014.

These factors hampered the upstream (or exploration & production) segment that reported a loss of $9,235 million. In the year-ago quarter the segment had generated a profit of $1,339 million. Other oil majors that were hurt by weak oil and gas prices during the fourth quarter include Royal Dutch Shell plc (RDS.A - Free Report) , BP plc (BP - Free Report) and Chevron Corporation (CVX - Free Report) .

To some extent, the downside was arrested by a 19% fall in Petrobras’ exploration costs, which totaled $476 million.

Cost per barrel (or cost to produce each barrel of oil) fell 25.6% in Brazil to $10.58, while overseas costs decreased 14.4% to $8.90.   

Downstream: During the fourth quarter, Petrobras’ downstream unit posted profits of $881 million. In the year-ago quarter the segment had incurred a massive loss of $12,584 million. The improvement was primarily attributable to lower crude oil transfer costs following a considerable fall in the crude sale price.

Refining costs per barrel in Brazil were down 16.6% to $2.26. Internationally, it fell 22.1% to $4.09. Petrobras imported an average of 365 MBbl/d, lower (by 53.4%) compared with the same period last year.

Capital Spending & Balance Sheet

During the three months ended Dec 31, 2015, Petrobras’ capital investments and expenditures totaled $5,419 million. At the end of the quarter, the company had cash and cash equivalents of $25,058 million and net debt of $100,379 million. Net debt-to-capitalization ratio was approximately 60%.

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