Petrobras 4Q Net Plunges, Challenges New CEO

Petrobras's profit plunged 52 percent in the fourth quarter, frustrating expectations the company can control the cost of an ambitious expansion plan and underlining the challenges faced by new chief executive Maria das Graça Foster.

Fourth-quarter net income fell to 5.05 billion reais ($2.94B) from 10.60B reais in the year-earlier quarter, as rising operating costs ate into an increase in revenue, the company said in a statement to Brazilian securities regulators. The average estimate of 10 analysts surveyed by Reuters was for a profit of 9.20B reais.

Foster, 58, who was approved in her post on Thursday shortly before Petrobras released its results, will have to manage a $225B five year investment program - the world's largest oil spending plan - that keeps growing.

Petrobras also on Thursday boosted its planned order for offshore drilling rigs to 26 from 21, and agreed to pay $76.3B over 15 years to lease the vessels in its largest ever contract, a company executive told Reuters.

The order continues a six-year spending spree under Foster's predecessor Jose Sergio Gabrielli to help Brazil challenge the US as the world's No 3 oil producer, behind Russia and Saudi Arabia, by 2020.

Gabrielli committed Petrobras to nearly triple its output to 6.4 million barrels a day in 2020. Despite the heavy spending, in December 2011 Petrobras's global output of 2.72 million barrels a day was lower than a year earlier.

Optimism over personell changes and management's ability to control costs and boost output helped Petrobras shares rise more than 18 percent this year, wiping out hefty losses in 2011, said Luiz Otavio Broad, oil and gas analyst with Agora Corretora in Rio de Janeiro.

"Petrobras needs to grow its production at a faster pace," Broad said before results were released. "This year is unlikely to be much better, but the company should start turning the corner in 2013. There is a lot of value there."

The profit decline was driven by a 675 million real charge for "impairment" related to the reduction in value of unnamed assets on Petrobras' books, Petrobras said.

The company also saw exploration and production costs rise as a result of the operation of wells nearing depletion. Wages also rose after a labor agreement. The cost of producing each barrel of oil, or the "lifting" cost rose to $7.02 dollars a barrel from $6.08 a barrel.

Net sales rose 20 percent to 65.3B reais from 54.2B reais a year earlier, less than the 67.2B reais expected by the analysts.

On a quarter-on-quarter basis, a closely followed gauge of earnings performance, net income fell 20 percent from 6.3B reais.

Earnings before interest, taxes, depreciation and amortisation, a gauge of a company's ability to generate cash from operations known as Ebitda, fell 2 percent to 14.1B reais from 14.3B reais in the fourth quarter of 2010.

Analysts expected Ebitda of 16.9B reais.

Compared with the third quarter, Ebitda fell 14 percent.

Output in 2011 was limited by unscheduled maintenance on ageing offshore platforms in the Campos Basin where Petrobras gets more than three-quarters of its output. The shutdowns and repair work, which followed safety and environmental complaints, is likely to continue this year though at a slower pace, Broad said.

Petrobras aims to add 480,000 barrels a day of output in 2012, but a third of that may not come on stream by the deadline.

While output was sluggish, the value of the oil produced rose. Brent crude futures averaged $109.02 a barrel in the fourth quarter, 25 percent more than a year earlier.

Refining got a boost from the government's Oct. 28 decision to cut taxes on gasoline, allowing Petrobras to increase its profit margin on fuel sales. The government, Petrobras' controlling shareholder, has resisted gasoline and diesel price increases in an effort to control inflation.

The boost, though was not enough to stem refining dvision losses which rose 39 percent to 4.41B reais in the fourth quarter from 3.16B reais in the third quarter.

Refining costs rose 6 percent to 8.57 reais a barrel from 8.07 a year earlier. Refining costs were almost unchanged from 8.56 a barrel in the third quarter.

Reuters/Rigzone - Friday, February 10, 2012