Brazilian state-run energy giant Petroleo Brasileiro S.A. (PBR), or Petrobras S.A., announced its third quarter earnings of R$8.6 billion or R$0.97 per share, compared with R$7.9 billion or R$0.90 per share in the year-earlier quarter.
Earnings per ADR came in at $1.13 (Exchange rate: U.S.$1.00 = R$1.72, 1 ADR = 2 shares), ahead of the Zacks Consensus Estimate of 92 cents. Petrobras’ net operating revenues of R$54.7 billion (or approximately $31.8 billion) was up 14.3% from the third quarter 2009 level and also beat our projection by 9.5%.
The positive comparisons can be primarily attributable to improved crude prices amid strong domestic energy demand, aided by a strengthening currency.
However, notwithstanding the earnings beat, Petrobras could not match the soaring profit gains posted by other integrateds, such as ExxonMobil (XOM) and Royal Dutch Shell plc. (RDS.A). This was mainly on account of government caps on fuel prices that eroded refining margins.
Segmental Performance
Upstream: Total oil and gas production during the third quarter of 2010 reached 2,570 thousand oil-equivalent barrels per day (MBOE/d), from 2,587 MBOE/d in the previous quarter and 2,534 MBOE/d in the same period of 2009.
Compared with the third quarter of 2009, Brazilian oil and natural gas liquids production increased marginally (by 0.9%), while international production improved 5.1%. Brazilian natural gas volumes were up 4.4% from the year-ago period. However, international output during the quarter was flat year over year.
During the third quarter of 2010, the average sales price of oil in Brazil increased 12.7% from the year-earlier period to $72.10 per barrel. Average sales price of international oil was up 10.8% year-over-year, reaching $63.35 per barrel. Regarding natural gas, average international sales price decreased 1.3% from the third quarter of 2009, while domestic price was down 25.2%.
Downstream: Refining costs per barrel in Brazil were up 45.1% to $4.89. Internationally, it increased 26.9% to $4.44. Lifting cost per barrel moved up 7.9% in Brazil to $24.67, while overseas costs rose 5.2% to $6.02. Petrobras exported an average of 612,000 barrels of oil per day, 15.7% lower compared to the same period last year.
Capital Spending & Balance Sheet
During the three months ended September 30, 2010, Petrobras’ capital investments totaled R$18.4 billion. At the end of the quarter, the company had cash and cash equivalents of R$47.3 billion and net debt of R$57.1 billion. Net debt-to-capitalization ratio was approximately 16%.
About the Company
Headquartered in Rio de Janeiro, Petrobras is the largest integrated energy firm in Brazil and one of the largest in Latin America. The company’s activities include exploration, exploitation and production of oil from reservoir wells, shale and other rocks; refining, processing, trade and transport of oil and oil products, natural gas and other fluid hydrocarbons; and other energy-related activities.
We are maintaining our long-term Neutral recommendation on Petrobras ADRs.
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