Brazilian state-run energy giant Petroleo Brasileiro S.A. (PBR), or Petrobras S.A., announced its first quarter earnings of R$10,985.0 million or R$0.84 per share, compared with R$7,726.0 million or R$0.88 per share in the year-earlier quarter. Per share profitability dropped after the company sold $70 billion of new stock in September last year. 

Earnings per ADR came in at $1.01 (exchange rate: U.S.$1.00 = R$1.66, 1 ADR = 2 shares), ahead of the Zacks Consensus Estimate of 93 cents. This was mainly on the back of improved crude prices amid strong domestic energy demand, aided by a strengthening currency, partially offset by government caps on fuel prices that eroded refining margins.

Petrobras’ revenues of R$54,800.0 million (or approximately $33,012.0 million) were up 8.7% from the first quarter 2010 level and also beat our projection by 3.2%.

Segmental Performance

Upstream: Total oil and gas production during the first quarter of 2011 reached 2,627 thousand oil-equivalent barrels per day (MBOE/d), up from 2,547 MBOE/d in the same period of 2010.

Compared with the previous year period, Brazilian oil and natural gas liquids production increased 3.0%, while international production remained flat. Brazilian natural gas volumes were up 7.6% from the year-ago period. However, international output during the quarter fell 2.1% year over year.

During the first quarter of 2011, the average sales price of oil in Brazil increased 29.0% from the year-earlier period to $94.04 per barrel. Average sales price of international oil was up 40.9% year-over-year, reaching $87.39 per barrel. Regarding natural gas, average international sales price increased 10.5% from the first quarter of 2010 but domestic price was down 38.6%.

Downstream: Refining costs per barrel in Brazil were up 24.5% to $4.53. Internationally, it increased 44.9% to $4.81. Lifting cost per barrel moved up 28.5% in Brazil to $30.48, while overseas costs rose 10.6% to $5.65. Petrobras exported an average of 646,000 barrels of oil per day, 13.8% below what it did in the same period last year.

Capital Spending & Balance Sheet

During the three months ended March 31, 2011, Petrobras’ capital investments totaled R$15,871.0 million. At the end of the quarter, the company had cash and cash equivalents of R$43,345.0 million and net debt of R$66,064.0 million. Net debt-to-capitalization ratio was approximately 17%.

About the Company

Headquartered in Rio de Janeiro, Petrobras competes with other established integrated energy firms like ExxonMobil Corp. (XOM), PetroChina Co. Ltd. (PTR), Royal Dutch Shell plc (RDS.A), etc. 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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