Petrobras Slumps After Fourth-Quarter Profit Misses Estimates: Rio Mover

Petroleo Brasileiro SA (PETR4), Latin America’s largest oil producer by market value, plunged the most in six months after quarterly profit missed estimates.

Petrobras fell 6.7 percent to 23.80 reais at 1:38 p.m. in Sao Paulo, the worst performer in the benchmark Bovespa index. It earlier fell as much as 6.9 percent, the most since Aug. 8.

Earnings fell short of expectations after a weakening currency boosted import expenses and costs to install equipment and pay workers rose. Fourth-quarter net income dropped to 5.05 billion reais ($2.9 billion), or 39 centavos a share, from 10.6 billion reais, or 1.07 reais, a year earlier, the Rio de Janeiro-based oil producer said yesterday.

“Results fell really short of market expectations, exposing the company’s inability to capture high oil prices,” Itau BBA analysts Paula Kovarsky and Diego Mendes wrote in a report dated yesterday. “Results came in well below our expectations, particularly due to much-higher import expenses.”

Petrobras was expected to earn 69 centavos a share excluding some items, the average of six analyst estimates compiled by Bloomberg.

Costs rose because of the installation of new production equipment in the so-called pre-salt region, an increase in platform maintenance and stoppages, and higher salaries, Petrobras said.

A weaker real also curbed profit because it boosted foreign debt payments. The Brazilian real fell to an average of 1.79 per dollar in the fourth quarter, compared with 1.70 per dollar in the year-ago period.

“The drop in profits had a lot to do with the exchange rate,” Chief Executive Officer Jose Sergio Gabrielli told reporters in Rio de Janeiro today.

Costs

Gasoline imports last year quadrupled to 30,000 barrels a day, refining head Paulo Roberto Costa has said. Oil futures in New York jumped 25 percent in the quarter.

Petrobras said it cost $12.49 to produce each barrel of oil -- the so-called lifting cost -- up from $10.29 a year earlier. Costs from unscheduled stoppages and installing equipment in the exploration and production division increased to 863 million reais in 2011, from 460 million a year earlier.

“It was a very difficult year with unplanned stoppages,” Chief Financial Officer Almir Barbassa said. “Costs rose.”

The oil producer plans to spend about $224 billion over five years as it develops the largest discoveries in the Western Hemisphere since Mexico’s Cantarell in 1976. Brazilian reserves that sit miles below the floor of the Atlantic Ocean trapped under layers of rock and salt hold an estimated 50 billion barrels of oil, according to the country’s oil regulator.

The company will invest 87.5 billion reais in 2012, up from 72.5 billion reais in 2011, according to a statement distributed in Rio today. About 48 percent of its investment budget will be spent on exploration and production.

New CEO

Petrobras also confirmed yesterday that Maria das Gracas Foster, the company’s natural-gas and energy chief, is replacing Gabrielli as chief executive officer.

Jose Formigli was named as the head of the company’s exploration and production business. Formigli was previously the head of Petrobras pre-salt unit that is in charge of developing the country’s largest oil fields. Jose Alcides Santoro Martins will take over as head of the gas and energy unit.

Proven reserves reached 16.4 billion barrels of oil equivalent, 2.7 percent more than a year earlier, Petrobras said yesterday. The so-called reserve replacement ratio was 148 percent.

Pre-Salt Reserves

Five of its projects in the so-called pre-salt area may hold combined reserves of as much as 8.5 billion barrels, the company said today. The fields are Lula, Cernambi, Iara, Guara and Parque das Baleias.

Total oil and gas production averaged 2.62 million barrels a day last year, compared with 2.58 million in 2010. Average production in Brazil was 2.02 million barrels.

Petrobras announced in a separate statement that it will lease 21 rigs from Sete Brasil Participacoes SA and five from Ocean Rig UDW Inc (OCRG) for 15 years. It will pay Sete Brasil $530,000 per day for the rigs and $548,000 per day to Ocean Rig.

“There was a large increase in costs, imported fuel was a little bit more expensive and there was more exploration,” Rafael Andreata, an analyst at Planner Corretora de Valores, who has a “buy” rating on the stock and doesn’t own any, said in a telephone interview from Sao Paulo before results were released.

Petrobras sold a record $7 billion in dollar bonds last week to help finance the biggest investment plan in the industry at a time when investors are seeking alternatives to European assets and lower-yielding investment-grade debt.

Borrowing

The company plans to borrow as much as $18 billion a year through 2015, mainly from international markets.

The sale matched SABMiller Plc (SAB)’s $7 billion offering last month as the largest dollar-denominated corporate bond issue this year, according to data compiled by Bloomberg.

Refining costs increased because Petrobras has to import expensive light oil because most of its plants can’t process the heavy, lower quality oil the company produces in Brazil, Gianna Bern, president of Chicago-based risk-management adviser Brookshire Advisory, said yesterday in a telephone interview.

“With prices as high as they have been, that’s just killing their refining business.”

To contact the reporter on this story: Peter Millard in Rio de Janeiro at pmillard1@bloomberg.net Rodrigo Orihuela in Rio de Janeiro at rorihuela@bloomberg.net

To contact the editor responsible for this story: Dale Crofts at dcrofts@bloomberg.net

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