Petrobras posts first loss in 13 years; results shock

RIO DE JANEIRO Fri Aug 3, 2012 9:07pm EDT

RIO DE JANEIRO (Reuters) - Brazil's state-led oil giant Petrobras (PETR4.SA) on Friday posted its first quarterly loss in more than 13 years, fanning concerns that the company, hampered by government intervention and soaring costs, will fail to meet its goal of becoming one of the three biggest crude producers by the end of the decade.

Petrobras lost 1.35 billion reais ($665 million) in the second quarter, compared with net income of 10.9 billion reais a year earlier, according to a securities filing. All nine analysts surveyed by Reuters expected the company to earn a profit. Their average estimate was 3.69 billion reais.

"The loss number is catching all of us by surprise," said Dany Rappaport, who oversees 250 million reais in assets for InvestPort in Sao Paulo. "As management recognizes some back-dated problems in the company's downstream units, analysts and investors might have to start rethinking our prospects for the company."

Chief Executive Officer Maria das Gra├žas Foster, who was appointed in January after nine years of missed production targets, blamed the loss on a weaker Brazilian currency, which boosted debt costs, and the write-off of losses related to recently drilled wells that came up dry or failed to show commercially viable resources.

Preferred shares of Brazil's largest company have shed 5 percent this year and investors were surprised in June when the company said major increases in output were unlikely before 2015 despite $237 billion in planned spending. The 2012-2016 plan is the world's largest corporate investment program.

Losses are unlikely to continue if Foster is using the quarter to clean up the company's accounts and trim expectations raised by patriotic trumpeting of oil as the country's future, Rappaport said.

She may be "simply trying to stifle uber-optimism and is asking the market to restate expectations," he said.

In addition to the currency and well costs, Petrobras earnings were hampered by rising capital spending, falling oil and gas output and the long refusal of the federal government, the company's controlling shareholder, to let the company raise fuel prices in line with increases in market prices for crude.

Brazil's real was an average 18 percent weaker in the second quarter than it was a year earlier. Brent crude oil, a benchmark for world prices, was 7 percent lower. Output, despite soaring spending, fell 1.1 percent.

FRUSTRATED HOPES?

The company's massive investment program, which calls for average spending of about $130 million a day for five years, is designed to more than double output to about 5.4 million barrels a day by 2020.

If achieved, Petrobras would become one of the world's three largest producers. By contrast, if other producers such as Shell (RDSa.L), BP (BP.L) and OGX Petroleo e Gas SA are included, Brazil could produce about 7 million barrels a day, threatening the U.S. for the role of world's No. 3 producer.

The government is looking to Petrobras, which is responsible for about 10 percent of the country's gross domestic product, to kick-start local shipyards, chemical plants, metalworks and high-tech services and help lift the country into the ranks of developed nations.

Production though fell in the quarter and fell after exploration and production costs more than tripled to 3.4 billion reais in the second quarter from 1 billion in the first quarter.

Most of those costs were related to frontier wells drilled between 2009 and 2012 - a period where the company focused drilling on some of its most promising offshore regions, many of them acquired in a 2010 stock for oil swap.

The swap, which raised about $70 billion, was the largest share sale in history. Petrobras used the cash to buy oil exploration assets from the government. At the time many analysts said Petrobras paid too much.

The well write-offs come after years of claims by company executives that its main exploration areas carry little or no risk.

Petrobras also faces declining output from existing fields, reducing the impact of new output from a giant offshore region near Rio de Janeiro known as the sub-salt.

And as exploration costs soared, refining losses mounted.

"We are working to recover our profitability," Foster said in the filing. "We have been reiterating our commitment to bring our domestic fuel prices in line with world prices for five months."

Petrobras raised its wholesale fuel price for the first time in six months in late June, too late to help a second quarter where the company lost 7.03 billion reais on its refining division.

Total refining losses this year now amount to 11.63 billion, or nearly a fifth of total sales.

UNPRECEDENTED LOSS

"I've never seen a company go from a profit of 10 billion reais to a loss of more than a billion so fast. This is something unprecedented," said Adriano Pires, head of the Brazilian Infrastructure Institute, a Rio de Janeiro energy research group.

Petrobras lost money even as sales rose. Net revenue, or total sales minus sales taxes, was 68 billion reais in the quarter, 10 percent more than a year earlier. The poll predicted revenue of 67 billion reais.

Earnings before interest, taxes, depreciation and amortization, or EBITDA, a measure of the company's ability to generate operational profits, was 10.6 billion reais, 34 percent less than a year earlier.

The analysts polled by Reuters expected EBITDA of 15.3 billion reais.

Before announcing results, Petrobras preferred shares, the company's most-traded class of stock, rose 1.73 percent to 19.94 reais in Sao Paulo trading.

($1 = 2.03 reais)

(Reporting by Jeb Blount and Leila Coimbra; Additional reporting by Guillermo Parra-Bernal in Sao Paulo; Editing by Marguerita Choy, David Gregorio and Bernard Orr)

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