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The stock of Brazil's state-run energy giant Petroleo Brasileiro S.A., or Petrobras (PBR - Free Report) , has gained 5.7% since its third-quarter results were announced on Nov 9. The positive response, despite an earnings miss, could be attributed to the company’s upward revision of its oil and gas output for 2023.
What Did Petrobras’ Earnings Unveil?
Petrobras announced third-quarter earnings per ADS of 86 cents, missing the Zacks Consensus Estimate of 90 cents. Earnings also came in well below the year-ago profit of $1.35.
The underperformance can be attributed to lower Brent prices and rising pre-salt lifting costs that resulted in weak upstream results, plus higher refining outlay and an unfavorable exchange rate.
Recurring net income, which strips one-time items, came in at $5,577 million compared to $8,857 million a year earlier. Petrobras’ adjusted EBITDA fell to $13,551 million from $17,410 million a year ago.
The company reported revenues of $25,552 million, which shrank 21.2% from the year-earlier sales of $32,411 million and came below the Zacks Consensus Estimate of $27,456 million.
Coming back to earnings, let's take a deeper look at the recent performances of PBR’s two main segments: Upstream (Exploration & Production) and Downstream (or Refining, Transportation and Marketing).
Petroleo Brasileiro S.A.- Petrobras Price, Consensus and EPS Surprise
Upstream: The Rio de Janeiro-headquartered company’s average oil and gas production during the third quarter reached 2,877 thousand barrels of oil equivalent per day (MBOE/d) — 81% liquids — up from 2,644 MBOE/d in the same period of 2022.
Compared with the year-ago quarter, Brazilian oil and natural gas production — constituting approximately 99% of the total output — increased 9% to 2,843 MBOE/d. The upside could be attributed to the production ramp-up of certain offshore platforms in the Itapu field and the Búzios field.
In the July-to-September period, the average sales price of oil (or the average Brent crude price) dropped 14% from the year-earlier period to $86.76 per barrel. The decrease in crude prices more than offset the improvement in production, thereby having a negative effect on upstream unit sales. Overall, the segment’s revenues fell to $17,922 million in the quarter under review from $19,293 million in the year-ago period.
As far as the bottom line is concerned, an uptick in pre-salt lifting costs (which rose 4.7% from the year-ago period to $5.61 per barrel) meant that the upstream unit recorded a net income of $6,275 million, down 17.1% from third-quarter 2022 earnings of $7,566 million.
Downstream (or Refining, Transportation and Marketing): Revenues from the segment totaled $23,691 million, 19.3% lower than the year-ago figure of $29,348 million on lower fuel oil and feedstock volumes. Petrobras' downstream unit came up with a profit of $814 million, which compared unfavorably with earnings of $1,383 million in the third quarter of 2022. Apart from volume issues, the dip was also on account of higher unit refining cost.
Costs
During the period, Petrobras’ sales, general and administrative expenses were $1,683 million, 8.8% higher than the year-ago period. Meanwhile, selling expenses rose from $1,213 million a year ago to $1,288 million. However, a large increase in other expenses ($1,049 million compared to $177 million) and exploration outlay ($480 million versus $107 million) led to a $1,224 million year-over-year rise in total operating costs.
The jump in costs and lower revenues meant that PBR reported an operating income of $9,980 million in the third quarter of 2023 compared with $14,170 million a year ago.
Financial Position
During the three months ended Sep 30, 2023, Petrobras’ capital investments and expenditures (excluding signature bonus) totaled $3,392 million compared with $2,131 million in the prior-year quarter.
Importantly, the company generated a positive free cash flow for the 34th consecutive quarter, with the metric coming in at $8,364 million, which, however, dropped from $10,116 million recorded in last year’s corresponding period.
At the end of the third quarter of 2023, Petrobras had a net debt of $43,725 million, down from $47,483 million a year ago but increasing from $42,177 million as of Jun 30, 2023. The company ended the quarter with cash and cash equivalents of $12,110 million.
Meanwhile, Petrobras’ net debt to trailing 12 months’ EBITDA ratio deteriorated to 0.83 from 0.75 in the previous year. It also worsened from 0.74 at the end of the second quarter of 2023.
Guidance
The largest oil producer in Latin America said it is looking to pump around 2.8 MBOE/d on average this year, up from the prior outlook of 2.6 MBOE/d. The upward revision reflects new wells coming online during the final quarter, platform ramp-ups and fewer maintenance-related downtime. At the same time, Petrobras reduced its 2023 capital spending projection by $3 billion to $13 billion.
Zacks Rank & Key Picks
Petrobras carries a Zacks Rank #3 (Hold) at present.
Meanwhile, investors interested in the energy sector might look at operators like Suncor Energy (SU - Free Report) , EOG Resources (EOG - Free Report) and PBF Energy (PBF - Free Report) . Each of these companies has a Zacks Rank #2 (Buy).
Suncor Energy: SU beat the Zacks Consensus Estimate for earnings in each of the trailing four quarters at an average of 15.7%.
Suncor Energy is valued at around $42.5 billion. SU has seen its shares move down 4.3% in a year.
EOG Resources: EOG Resources beat the Zacks Consensus Estimate for earnings in three of the last four quarters and missed in the other. EOG has a trailing four-quarter earnings surprise of 9.2%, on average.
EOG Resources is valued at around $72 billion. EOG has seen its shares drop 9.6% in a year.
PBF Energy: Over the past 60 days, PBF Energy saw the Zacks Consensus Estimate for 2023 move up 14.6%. PBF beat the Zacks Consensus Estimate for earnings in three of the last four quarters and missed in the other, representing an average surprise of 9.3%.
PBF Energy is valued at around $5.5 billion. PBF has seen its shares lose 5.4% in a year.
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Petrobras (PBR) Shines Despite Q3 Earnings Miss: Here's Why
The stock of Brazil's state-run energy giant Petroleo Brasileiro S.A., or Petrobras (PBR - Free Report) , has gained 5.7% since its third-quarter results were announced on Nov 9. The positive response, despite an earnings miss, could be attributed to the company’s upward revision of its oil and gas output for 2023.
What Did Petrobras’ Earnings Unveil?
Petrobras announced third-quarter earnings per ADS of 86 cents, missing the Zacks Consensus Estimate of 90 cents. Earnings also came in well below the year-ago profit of $1.35.
The underperformance can be attributed to lower Brent prices and rising pre-salt lifting costs that resulted in weak upstream results, plus higher refining outlay and an unfavorable exchange rate.
Recurring net income, which strips one-time items, came in at $5,577 million compared to $8,857 million a year earlier. Petrobras’ adjusted EBITDA fell to $13,551 million from $17,410 million a year ago.
The company reported revenues of $25,552 million, which shrank 21.2% from the year-earlier sales of $32,411 million and came below the Zacks Consensus Estimate of $27,456 million.
Coming back to earnings, let's take a deeper look at the recent performances of PBR’s two main segments: Upstream (Exploration & Production) and Downstream (or Refining, Transportation and Marketing).
Petroleo Brasileiro S.A.- Petrobras Price, Consensus and EPS Surprise
Petroleo Brasileiro S.A.- Petrobras price-consensus-eps-surprise-chart | Petroleo Brasileiro S.A.- Petrobras Quote
Upstream: The Rio de Janeiro-headquartered company’s average oil and gas production during the third quarter reached 2,877 thousand barrels of oil equivalent per day (MBOE/d) — 81% liquids — up from 2,644 MBOE/d in the same period of 2022.
Compared with the year-ago quarter, Brazilian oil and natural gas production — constituting approximately 99% of the total output — increased 9% to 2,843 MBOE/d. The upside could be attributed to the production ramp-up of certain offshore platforms in the Itapu field and the Búzios field.
In the July-to-September period, the average sales price of oil (or the average Brent crude price) dropped 14% from the year-earlier period to $86.76 per barrel. The decrease in crude prices more than offset the improvement in production, thereby having a negative effect on upstream unit sales. Overall, the segment’s revenues fell to $17,922 million in the quarter under review from $19,293 million in the year-ago period.
As far as the bottom line is concerned, an uptick in pre-salt lifting costs (which rose 4.7% from the year-ago period to $5.61 per barrel) meant that the upstream unit recorded a net income of $6,275 million, down 17.1% from third-quarter 2022 earnings of $7,566 million.
Downstream (or Refining, Transportation and Marketing): Revenues from the segment totaled $23,691 million, 19.3% lower than the year-ago figure of $29,348 million on lower fuel oil and feedstock volumes. Petrobras' downstream unit came up with a profit of $814 million, which compared unfavorably with earnings of $1,383 million in the third quarter of 2022. Apart from volume issues, the dip was also on account of higher unit refining cost.
Costs
During the period, Petrobras’ sales, general and administrative expenses were $1,683 million, 8.8% higher than the year-ago period. Meanwhile, selling expenses rose from $1,213 million a year ago to $1,288 million. However, a large increase in other expenses ($1,049 million compared to $177 million) and exploration outlay ($480 million versus $107 million) led to a $1,224 million year-over-year rise in total operating costs.
The jump in costs and lower revenues meant that PBR reported an operating income of $9,980 million in the third quarter of 2023 compared with $14,170 million a year ago.
Financial Position
During the three months ended Sep 30, 2023, Petrobras’ capital investments and expenditures (excluding signature bonus) totaled $3,392 million compared with $2,131 million in the prior-year quarter.
Importantly, the company generated a positive free cash flow for the 34th consecutive quarter, with the metric coming in at $8,364 million, which, however, dropped from $10,116 million recorded in last year’s corresponding period.
At the end of the third quarter of 2023, Petrobras had a net debt of $43,725 million, down from $47,483 million a year ago but increasing from $42,177 million as of Jun 30, 2023. The company ended the quarter with cash and cash equivalents of $12,110 million.
Meanwhile, Petrobras’ net debt to trailing 12 months’ EBITDA ratio deteriorated to 0.83 from 0.75 in the previous year. It also worsened from 0.74 at the end of the second quarter of 2023.
Guidance
The largest oil producer in Latin America said it is looking to pump around 2.8 MBOE/d on average this year, up from the prior outlook of 2.6 MBOE/d. The upward revision reflects new wells coming online during the final quarter, platform ramp-ups and fewer maintenance-related downtime. At the same time, Petrobras reduced its 2023 capital spending projection by $3 billion to $13 billion.
Zacks Rank & Key Picks
Petrobras carries a Zacks Rank #3 (Hold) at present.
Meanwhile, investors interested in the energy sector might look at operators like Suncor Energy (SU - Free Report) , EOG Resources (EOG - Free Report) and PBF Energy (PBF - Free Report) . Each of these companies has a Zacks Rank #2 (Buy).
You can see the complete list of today’s Zacks #1 Rank stocks here.
Suncor Energy: SU beat the Zacks Consensus Estimate for earnings in each of the trailing four quarters at an average of 15.7%.
Suncor Energy is valued at around $42.5 billion. SU has seen its shares move down 4.3% in a year.
EOG Resources: EOG Resources beat the Zacks Consensus Estimate for earnings in three of the last four quarters and missed in the other. EOG has a trailing four-quarter earnings surprise of 9.2%, on average.
EOG Resources is valued at around $72 billion. EOG has seen its shares drop 9.6% in a year.
PBF Energy: Over the past 60 days, PBF Energy saw the Zacks Consensus Estimate for 2023 move up 14.6%. PBF beat the Zacks Consensus Estimate for earnings in three of the last four quarters and missed in the other, representing an average surprise of 9.3%.
PBF Energy is valued at around $5.5 billion. PBF has seen its shares lose 5.4% in a year.