Petrobras Profit Beats Estimates on Drop in Fuel Imports

(Corrects time period in fifth paragraph.)

Petroleo Brasileiro SA (PETR4)’s voting shares rose to a three-month high after the state-run oil producer beat profit estimates and fueled expectations it will increase dividends.

Voting shares of Petrobras, the sixth most valuable oil company, climbed 6.8 percent to 19.27 reais at 12:41 p.m. in Sao Paulo, after rising to as much as 19.31 reais, the highest since Jan. 29. Brazil’s benchmark stock index advanced 0.5 percent.

Earnings before interest, taxes, depreciation, and amortization fell 2 percent from a year earlier to 16.2 billion reais ($8.1 billion), the Brazilian state-run company said April 26. It surpassed the 14.4 billion-reais average of four analysts’ estimates compiled by Bloomberg.

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“The company reported good results in the first quarter,” Roberto Altenhofen, an oil and gas analyst at Sao Paulo-based consulting firm Empiricus Research, said in a telephone interview. “They’re doing their homework. It seems to be on the right track to eventually change its dividend policy.”

Petrobras reduced the dividend on voting stock to 47 centavos a share on Feb. 4, compared with 96 centavos for preferred shares, in an effort to preserve cash. Net income fell 17 percent to 7.7 billion reais in the first quarter, or 59 centavos a share, more than the 57-centavo average of 11 analysts’ estimates.

‘Surprise’

“It’s been a while since Petrobras has brought a positive earnings surprise with such clean results,” Banco Itau SA analysts Paula Kovarsky and Diego Mendes wrote in a research report after the results were released. “We expect a positive market reaction.”

Fuel imports fell 7 percent on year to 376,000 barrels a day after refinery output rose 10 percent to 2.1 million barrels a day, the company said. Petrobras has sold imported gasoline and diesel at a discount since the start of 2011 as part of a government policy to keep inflation in check. Losses at the refining and supply division fell 8 percent to 6.5 billion reais.

Domestic fuel price increases combined with a drop in international prices will continue to reduce Petrobras’s losses from importing gasoline and diesel, Oswaldo Telles, an analyst at Banco Espirito Santo SA, said in a research report before the results. Petrobras increased prices for gasoline and diesel by 6.6 percent and 5.4 percent, respectively, on Jan. 30, and raised diesel prices by 6 percent on March 5.

“If oil and oil product prices were to remain at current levels, we think price gaps would be low enough to be irrelevant for Petrobras and imports would cease to be a source of concern,” Telles said. “We forecast a full margin recovery due to the recent price increases.”

Cost Cuts

Oil and natural gas output fell 5 percent in the first quarter to 2.55 million barrels a day from a year earlier after the company shut production platforms for maintenance. Cost control programs Petrobras started last year mitigated losses from the output drop, the Itau analysts said.

“Cost reduction programs and efficiency gains, along with record processing at refineries, can positively impact the next results,” Andrea Aznar, an analyst at Banco do Brasil SA (BBAS3), said in an April 26 research report after the results.

The producer announced 32 billion reais of cost cuts in December to slow spending growth. A cost optimization program delivered 1.3 billion reais in savings in the first quarter, Chief Executive Officer Maria das Gracas Foster said in the report.

New Capacity

Petrobras expects average production this year to match the 2.6 million barrels a day it produced in 2012 after output recovers in the second half, Foster said. Last year Petrobras posted its first annual output decline since 2004 after new wells in the so-called pre-salt region failed to offset declines at aging Campos Basin fields.

The company will start production on May 28 at a platform at the Lula oil field, Brazil’s biggest, and add four more units in the remainder of the year, Foster said.

“An increasing amount of new production capacity being installed in both pre-salt and conventional fields should more than offset the effects of maintenance in the Campos basin fields and natural field declines,” Frank McGann, a Bank of America Corp. analyst, said in a research report today. “That should make it one of the leading growers among global oils.”

McGann raised Petrobras to ‘buy’ from ‘hold’ following the better-than-expected results.

Investments rose 10 percent to 19.8 billion reais in the first quarter, with 54 percent spent on exploration and production, the company said. Petrobras is investing $236.7 billion over five years to build refineries, develop deepwater fields and ramp up output at deepwater fields including Lula. Petrobras produces more oil than any other company in waters deeper than 1,000 feet (305 meters) and is building dozens of platforms and drillships to expand output.

To contact the reporters on this story: Peter Millard in Rio de Janeiro at pmillard1@bloomberg.net; Ney Hayashi in Sao Paulo at ncruz4@bloomberg.net

To contact the editor responsible for this story: James Attwood at jattwood3@bloomberg.net

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