Petrobras First-Quarter Profit Slides, but Beats Estimates

RIO DE JANEIRO - Declining crude-oil production undercut first-quarter net profits at Brazilian state-run energy giant Petroleo Brasileiro SA, but recent increases to domestic fuel prices and a shift to greater imports of crude oil instead of gasoline and diesel helped the company beat analysts forecasts.

Petrobras, as the oil company is also known, said late Friday that net profit fell 17% year-on-year in the first quarter to 7.69 billion Brazilian reais ($3.85 billion), down from BRL9.21 billion in the year-before period. Despite the decline, the results beat the BRL6.93 billion median forecast of 11 analysts.

"The results came in well above what we expected," said Oswaldo Alcantara Telles Filho, an analyst at Sao Paulo's Espirito Santo Investment Bank. Increases to domestic fuel prices boosted gross margins, while the company also registered a bigger-than-expected foreign-exchange gain, Mr. Telles said. The real's 1.5% appreciation against the U.S. dollar resulted in a BRL1.39 billion foreign-exchange gain on the company's dollar-denominated debt, Petrobras said.

Petrobras has raised gasoline prices 15% and diesel prices 22% over the past nine months, including two diesel price increases and a single increase to gasoline prices in the first quarter. The price increases lifted revenues to BRL72.5 billion in the first quarter, up 10% from BRL66.1 billion in the prior-year period, Petrobras said.

"Without a doubt the increases are important and we continue committed to seeking convergence with international prices as demonstrated by the recent adjustments," Petrobras Chief Executive Maria das Gracas Foster said in the earnings release. According to Espirito Santo, domestic fuel prices were on average about 20% below international prices in the first quarter.

Adjusted earnings before interest, taxes, depreciation and amortization, or Ebitda, in the first quarter were BRL16.2 billion, down from BRL16.5 billion in the year-prior quarter but greater than the BRL15.1 billion analysts expected.

Petrobras also capitalized on recent increases to refining capacity, saving money by opting to import greater volumes of crude oil to be processed by the company and reducing imports of pricier gasoline and diesel. Petrobras processed 2.127 million barrels a day in the first quarter, up 10% from the year-ago quarter.

"Petrobras has made a huge effort to increase internal production to minimize the problem of imports, but the impact is limited," Mr. Telles said. "Petrobras's capacity to increase refining capacity is very small in relation to total consumption, although it's still important."

Domestic fuel demand still forced the company to import hefty amounts of diesel as fuel sales were up 9% year-on-year in the first quarter, the company said. Crude-oil production also slipped 8% from the first-quarter of 2012 to 1.91 million barrels per day, leading to a reduction in exports as Petrobras diverted output for processing in the domestic market. Petrobras expects output of about two million barrels per day in 2013, stable with 2011 and 2012, amid heavy maintenance shutdowns at offshore platforms.

Petrobras imported a net 454,000 barrels of crude and oil products per day in the first quarter, more than eight times year-ago imports and up 6% from the fourth quarter of 2012. Imports of derivatives, however, were down 7% from the first quarter of 2012 and 26% from the fourth quarter of 2012, Petrobras said.

While lower output hit the company's bottom line in the first quarter, Petrobras's Ms. Foster said that she remained "confident" in the outlook for greater production in the near future. Petrobras has installed two new production platforms so far in 2013, with a third platform expected to start production on May 28, Ms. Foster noted. An additional four platforms will follow throughout 2013, "contributing to a sustained elevation in production starting in the second half [of 2013]," she said.

Petrobras also continued its ambitious investments in the first quarter, with spending up 10% from the year-before period to BRL19.8 billion. Petrobras expects to spend a total of BRL98 billion this year, part of the company's $237 billion spending plan for the 2013-2017 period.

Despite the increased spending, Petrobras was able to hold financial metrics in check. Net debt ended the first quarter at BRL74.8 billion, up 3% from the end of the fourth quarter of 2012. Net debt decreased to 2.32 times Ebitda in the first quarter from 2.77 times at the end of the fourth quarter, Petrobras said.

The company's locally traded shares closed 0.5% higher at BRL19.29 on the Sao Paulo Stock Exchange ahead of the release. In New York, the company's American depositary receipts ended 0.4% higher at $18.03.


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