PEP's profits result from its 75.82% stake in operating unit Petrobras Energía (PE) (NYSE: PZE), which is active in Argentina, Bolivia, Peru, Ecuador and Venezuela.
"In general, the company's results this year are rather in line with what we were expecting," Standard & Poor's analyst Luciano Gremone told BNamericas, adding that the company continues to show strong financial flexibility.
"The refining business today in Argentina is confronting some challenges. But in the case of Petrobras and Petrobras Energía, these challenges are partially mitigated by the strong level of integration the company has," Gremone said.
The increase in PEP's net profits reflect a 10.2% rise in net sales to 11.7bn pesos in the period, according to PEP. Excluding the conversion of Venezuelan operating service contracts to joint ventures with state oil company PDVSA in April 2006, sales were up 20%.
PEP posted a fourth quarter net profit of 214mn pesos, down 24.9% from 285mn pesos in 4Q05 in spite of a 3.8% increase in Q4 sales year-on-year.
The company also posted a 33.4% fall in operating profits to 415mn pesos in 4Q06 compared to the year-ago period. Excluding the effects of the Venezuelan contract conversions, operating profits were up 1.2% in the quarter.
PEP is a subsidiary of Brazil's federal energy company Petrobras (NYSE: PBR), which aims to invest US$2.37bn in Argentina from 2007-11 as part of its five-year investment plan, BNamericas previously reported.
Apart from PE and transmission company Transener, PEP holds stakes in local power distributor Edesur, gas transporter TGS and petrochemicals company Petroquimica Cuyo, among other interests.
PEP's net equity stood at 6.22bn pesos at end-December, up 20.7% from the beginning of the year.
PEP's higher sales were driven by stronger performance in all its business areas including E&P, refining and distribution, petrochemicals, sales and transport of hydrocarbons as well as power distribution.
The largest increases in sales were 39.8% in electric power operations to 512mn pesos, and refining and distribution was up 17.5% to 4.53bn pesos.
However, sales costs rose 17.1% to 8.25bn pesos in the year, causing gross profit to fall 3.1% to 3.61bn pesos.
The refining and distribution business line suffered as a result of increased crude costs. The costs could not be passed on in local sales due to price stabilization restrictions. As a result, the refining and distribution line's operating losses increased 214% to 468mn pesos in the year.
Despite increased profits on the back of E&P and refining and distribution operations, the company produced 7.6% less oil and gas, or 170,700boe/d. The decreased production came mostly from operations in Venezuelan oil, which was nearly halved to 23,000b/d in the period.
Production in Venezuela in the fourth quarter was down even further at 15,900b/d.
Overall, the company's reserves were down 31% at year-end to 527Mboe, or 324Mb crude and 1.22Tf3 gas, according to an audit by US consulting firm Gaffney, Cline & Associates.
PEP registered operating profits of 162mn pesos in its petrochemicals operations in 2006, down 39.3% on the previous year.
Operating income from marketing and hydrocarbons transport was up 23.2% to 345mn pesos compared to 2005.
Operating income from electric power operations increased 12.9% to 192mn pesos as a result of 18.7% higher net sales and improved generation prices.
PE's 4Q06 profits were 285mn pesos, up 224% year-over-year.
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