UPDATE 3-Petrobras tries to ease investor concerns after loss

Mon Aug 6, 2012 5:53pm EDT

* Company declared 41 wells dry, non-commercial in Q2
    * Petrobras says output to return to 2011 levels in Q4
    * Company has much to do to improve results, CEO says
    * Stock trims losses after executives' remarks


    By Jeb Blount and Leila Coimbra
    RIO DE JANEIRO, Aug 6 (Reuters) - Brazil's state-run oil
giant Petrobras sought to ease investor concerns on
Monday after posting its first quarterly loss in 13 years,
saying the main factors behind the disappointing numbers are
likely to ease in the coming months.
     Petrobras' preferred shares, the company's
most-traded class of stock, trimmed early losses of more than 5
percent in Sao Paulo to close little changed from Friday after
the executives comments. The share price, which fell 0.1 percent
to 19.92 reais, remains near three-year lows.
    The sharp depreciation of Brazil's currency against the
dollar, the main cause of the company's first loss since 1999,
is not expected to happen again in coming quarters, company
executives said in a webcast with analysts. That should prevent
the cost of debt and fuel imports from rising. 
    Increases in gasoline and diesel prices should cut losses in
Petrobras' refining unit while new production systems should
allow oil output to recover or slightly exceed 2011 levels by
the end of the year, the executives said.
    A more than fourfold increase in exploration and production
costs, sparked by the closing of 41 dry frontier region wells
drilled between 2009 and 2012, were a one-time write off,
company officials said. 
    "We won't repeat such a large number of dry wells in the
second half," Chief Executive Maria das Gra├žas Foster told
reporters at company headquarters in Rio de Janeiro. "We have a
lot to do in the company to improve our results."
 
 
    Petrobras posted on Friday a net loss of 1.35 billion reais
($665 million) in the second quarter, compared with a net gain
of 10.9 billion reais a year earlier. None of the nine analysts
surveyed by Reuters before the announcement expected a loss.
Their average estimate was for a 3.69 billion real profit.
 
    The results have fanned 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.
    "These results are very disappointing even considering the
fact that they include one-time events," said Karina Freitas,
oil and gas company analyst with Concordia Corretora, a Sao
Paulo brokerage, in a note to investors. "Higher demand and
lower production, seasoned with a currency devaluation, create a
very indigestible result."
     The biggest impact on results was from the currency, Foster
said. Brazil's real was an average 18 percent weaker in
the second quarter than it was a year earlier. Lower returns
from crude sales also hurt as production fell.
    Brent crude oil, a benchmark for world prices, was 7
percent lower in the period. Output fell 1.1 percent.
    
    OUTPUT FALLS    
    Output dropped even as the company ramped up its $237
billion 2012-2016 investment plan, the world's largest corporate
investment program, which estimates an average spending of about
$130 million a day for five years.
    Petrobras hopes the plan will help the company more than
double total output to about 5.4 million barrels of oil and
natural gas a day (booed) in 2020, enough to put it in the top
three, from about 2.5 million boepd now.
    No major increases, though, are expected until 2015.
    Still, Petrobras said that operations will improve. New
gasoline and diesel refining units should boost domestic output
of fuel, reducing the need for imports, executives said.

    "WON'T HAPPEN AGAIN"
    If the company delivers, the coming quarters should show
better performance, Dany Rappaport, who oversees 250 million
reais in assets for InvestPort in Sao Paulo, told Reuters
Friday.
    "The convergence of factors, exchange rates, dry wells, fuel
imports, won't repeat themselves in the coming quarters," Foster
said.
    Several analysts, including Lilyanna Yang of Swiss bank
UBS's Sao Paulo office, maintained their "buy" recommendations
on the stock. Paul Chang of Barclay's New York office maintained
his "overweight" recommendation and says the company's U.S.
traded stock could rise 62 percent.
    Improvements to refining-unit transportation systems should
also boost efficiency in a refining unit that posted a 7 billion
real loss in the second quarter, a loss more than 50 percent
larger than in the first quarter, executives said.
    The company is also moving to narrow the gap between
international fuel and crude prices and fuel prices in Brazil.
Brazil's government allowed Petrobras to raise wholesale prices
of gasoline and diesel for the first time in six years in June.
    While Petrobras still sells fuel at a loss, Foster said she
is committed to bringing local prices in line with world prices.
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