Brazilian state-run energy giant Petroleo Brasileiro S.A. (PBR), or Petrobras S.A., announced its fourth quarter earnings of R$10.6 billion or R$0.81 per share, compared with R$7.7 billion or R$0.87 per share in the year-earlier quarter.

Earnings per ADR came in at 98 cents (exchange rate: U.S.$1.00 = R$1.66, 1 ADR = 2 shares), ahead of the Zacks Consensus Estimate of 83 cents. Petrobras’ revenues of R$54.5 billion (or approximately $32.8 billion) was up 14.3% from the fourth quarter 2009 level and also beat our projection by 10.8%.

The positive comparisons can be primarily attributed to improved crude prices amid strong domestic energy demand, aided by a strengthening currency.

For full-year 2010, Petrobras earned R$35.2 billion or R$3.57 per share on revenues of R$213.3 billion.

Segmental Performance

Upstream: Total oil and gas production during the fourth quarter of 2010 reached 2,628 thousand oil-equivalent barrels per day (MBOE/d), from 2,570 MBOE/d in the previous quarter and 2,561 MBOE/d in the same period of 2009. For the year ended December 31, 2010, production of natural gas and crude oil reached 2,583 MBOE/d, up 2.3% from 2009.

Compared with the fourth quarter of 2009, Brazilian oil and natural gas liquids production increased 1.9%, while international production remained flat. Brazilian natural gas volumes were up 10.6% from the year-ago period. However, international output during the quarter fell 3.1% year over year.

During the fourth quarter of 2010, the average sales price of oil in Brazil increased 13.5% from the year-earlier period to $79.70 per barrel. Average sales price of international oil was up 14.8% year-over-year, reaching $73.90 per barrel. Regarding natural gas, average international sales price increased 3.1% from the fourth quarter of 2009 but domestic price was down 9.7%.

Downstream: Refining costs per barrel in Brazil were up 27.4% to $4.79. Internationally, it increased 32.9% to $4.08. Lifting cost per barrel moved up 3.4% in Brazil to $25.58, while overseas costs rose 4.8% to $6.80. Petrobras exported an average of 658,000 barrels of oil per day, 3.4% lower compared to the same period last year.

Capital Spending & Balance Sheet

During the three months ended December 31, 2010, Petrobras’ capital investments totaled R$19.9 billion, bringing the full-year spending to R$76.4 billion. At the end of the quarter, the company had cash and cash equivalents of R$30.3 billion and net debt of R$62.1 billion. Net debt-to-capitalization ratio was approximately 17%.

About the Company

Headquartered in Rio de Janeiro, Petrobras is the largest integrated energy firm in Brazil and the second-biggest oil company in the world by market value behind ExxonMobil (XOM). The company’s activities include: exploration, exploitation and production of oil from reservoir wells, shale and other rocks, and refining, processing, trade and transport of oil and oil products, natural gas and other fluid hydrocarbons, in addition to other energy-related activities.

Petrobras ADRs currently retain a Zacks #3 Rank, which translates into a short-term Hold rating. We are also maintaining our long-term Neutral recommendation on the stock.

 
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