Petrobras' Q4 profit beats outlook; debt passes limit

RIO DE JANEIRO Mon Feb 4, 2013 9:22pm EST

RIO DE JANEIRO (Reuters) - Brazil's state-led oil company, Petroleo Brasileiro SA (PETR4.SA), said on Monday that fourth-quarter net profit rose 53 percent from a year earlier as unexpected financial gains made up for rising operational costs.

Consolidated net income attributable to shareholders was 7.75 billion reais ($3.89 billion) in the three months ending December 31, the Rio de Janeiro-based company said in a filing with Brazil's CVM securities regulator.

While profit beat the 6.21-billion-real outlook in a Reuters survey of 12 analysts, Petrobras also said debt also rose to 2.77 times earnings before interest, taxes, depreciation and amortization (EBITDA).

That's above the company's own limit of 2.5 times EBITDA, as Reuters reported December 18 after Moody's Investors service put Petrobras debt on watch for a possible downgrade.

The result comes as Chief Executive Maria das Graças Foster promises to find savings of more than $15 billion to prevent a $237 billion five-year investment plan from ballooning. That plan, the world's largest corporate investment program, aims to develop giant offshore reserves and make Petrobras one of the world's largest oil companies by 2020.

"It's good to see the company reporting a higher profit and beating expectations, but the numbers also raise a lot of questions and doubts," said Pedro Galdi, oil company analyst with SLW Corretora, a Sao Paulo securities brokerage. "It's hard to see how this result shows a company improving its operations and fiscal discipline."

In a note accompanying results, Foster said management knows the company's operational problems, is working to fix them, and believes Petrobras has good medium and long-term prospects. Output in 2013, though, will remain at 2012 levels, she said.

All of the fourth-quarter profit increase can be attributed to a 2.64-billion-real sale of Brazilian government Treasury bonds and a two-thirds decline in income and social security taxes, according to the company's income statement.

The company's operational difficulties were more sharply reflected in the annual result, the worst for the Rio de Janeiro-based company in eight years.

Full-year 2012 profit of 21.2 billion reais was 36 percent less than in 2011, owing to soaring costs and a second-quarter loss, the company's first in 13 years.

Rising costs prevented Petrobras from taking advantage of soaring Brazilian fuels demand and the government's approval of gasoline and diesel-fuel price increases in June and July.

Net sales, or sales minus sales taxes, rose to 73.4 billion reais, a 12.5 percent increase compared with the fourth quarter of 2011.

Sales were in line with expectations. In the Reuters survey, the average analyst estimate was 73.8 billion reais.

REFINING LOSSES CONTINUE

The fuel-price increases, though, didn't make up for the losses Petrobras has taken on its refining operations.

After the June and July increases, Petrobras' wholesale fuel price was still about 11 percent below international prices for gasoline and about 14 percent below world prices for diesel, according to Caio Carvalhal and Felipe Dos Santos, oil and gas analysts with JPMorgan Chase & Co. in Sao Paulo.

Unable to meet demand for fuels from 12 refineries in Brazil, the company, Brazil's only refiner, had to raise imports. Fuel imports jumped 28 percent in the quarter compared to a year earlier.

Because world fuel prices were higher than those in Brazil, it sold that fuel in Brazil at a loss.

Net fuel and oil imports rose 90 percent in the period and refining losses jumped to 5.65 billion reais in the quarter bringing total annual refining unit losses to 22.9 billion reais, an amount larger than the company's entire annual profit.

Some of that gap was closed with an additional, January fuel-price increase.

SURPRISE FINANCIAL GAINS

At the same time, exploration costs rose 43 percent to 2.15 billion, the cost of goods sold rose 19 percent and general and administrative expenses rose 8.3 percent.

As a consequence adjusted earnings before EBITDA fell 15 percent from a year earlier to 11.94 billion reais. EBITDA is a measure of a company's ability to generate cash and profit from operations.

This result missed expectations. The average EBITDA estimate in the Reuters survey was 14.2 billion reais.

Profit would have fallen were it not for a nearly four-fold increase in financial earnings to 2.79 billion reais led by the Treasury bond sale, which Galdi called "unusual".

Lucas Brendler, an analyst at Banco Geração Futuro in Porto Alegre told Reuters before the announcement that financial results had not been expected to have a major impact on results this quarter.

"This financial result, especially the government treasury bond sale is going to raise questions," Galdi said after the results were released.

The lower-than-expected EBITDA result comes as Petrobras debt is also soaring. Net debt, or total debt minus cash and cash equivalents, jumped 32 percent to 72.3 billion reais on December 31 from 54.9 billion reais a year earlier.

EBITDA is a key measure of debt sustainability as it measures profit from operations available to pay debt.

Petrobras preferred shares, the company's most-traded class of stock, fell 2.5 percent in Sao Paulo trading on Monday before the results were announced.

It fell to 18.08 reais a share, its lowest close in more than six months. The stock has lost nearly 8 percent since the beginning of the year.

($1 = 1.99 Brazilian reais)

(Reporting by Jeb Blount and Leila Coimbra; editing by Paulo Prada, Gary Hill, Matthew Lewis and Jeremy Laurence)

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