Petrobras Had Surprise Net Loss in Quarter on Currency

Petroleo Brasileiro SA, the worst performing global oil company this year, unexpectedly reported its first loss in more than a decade after a depreciation of the local currency increased costs in the second quarter.

Petrobras had a loss of 1.35 billion reais ($666 million) compared with net income of 10.9 billion reais a year earlier, the Rio de Janeiro-based company said today in a statement. The loss missed the 2.94 billion-real adjusted profit average of nine analysts’ estimates compiled by Bloomberg. It was Petrobras’s first loss since 1999, according to data compiled by Bloomberg.

A 9.1 percent depreciation of the local currency in the quarter increased the cost of buying equipment and services that are denominated in dollars, the company said. Brazil’s real is the worst performer among the 16 major currencies tracked by Bloomberg this year, data shows.

“This result isn’t recurrent, and is the result of a group of factors: the strong depreciation of the real against the dollar,” Chief Executive Officer Maria das Gracas Foster said in the statement. “Also the price gap between fuel sold in the Brazilian market in relation to international parameters.”

Imported gasoline cost 22 percent more than domestic fuel in the quarter because the government, which controls Petrobras’ board, fixed prices to rein in inflation, Auro Rozenbaum, an analyst at Bradesco SA, said in a note to clients before the report were released.

Dollar-Denominated Debt

“We had some issues that were very negative for Petrobras, like the necessity to import more gasoline and more diesel,” Lucas Brendler, who helps manage about 7 billion reais at Banco Geracao Futuro de Investimento, said by telephone from Porto Alegre, Brazil, before the report. “Petrobras must buy this at a higher price than what it can sell inside Brazil.”

The weaker local currency hurts profit as the value of the company’s dollar-denominated debt increases, Chief Financial Officer Almir Barbassa said in a May 22 interview.

“We finance ourselves from the international capital market so our exposure to the dollar is high,” Barbassa said. “We have to recognize the loss.”

The financial losses will “have an impact” on the amount of dividends the company will pay this year, he said.

Profit was also hurt by a drop in oil production and rising costs related to an increase in dry holes. A decline in international fuel prices reduced the value of Petrobras’ inventories at foreign refineries, the company said.

Chevron Shutdown

Petrobras’s production rose 1.5 percent last year to 2.62 million barrels a day, on average, the slowest rate since 2007, the company has said on its website. In the second quarter output fell 1.1 percent from a year ago after the shutdown of the Chevron Corp.’s 60,000-barrel-a-day Frade field, where Petrobras has a minority stake. Output was also curbed by maintenance-related platform shutdowns.

The company will continue adjusting domestic fuel prices to eliminate losses on gasoline and diesel imports, Foster said.

“Since I became president of Petrobras five months ago, I’ve continued reiterating our commitment to parity with international prices,” she said. “These adjustments are necessary to finance the business plan.”

Petrobras increased prices for gasoline 7.8 percent on June 25 to reduce the discount with international prices, the first boost since November.

Deepwater Developments

Petrobras, the biggest producer in waters deeper than 1,000 feet (3,048 meters), plans to more than double output to 5.7 million barrels a day in 2020. The company is investing $236.5 billion over five years to build refineries, develop deepwater fields and ramp up output at Lula, the largest discovery in Brazil’s history.

The company is developing fields in waters as deep as 2,800 meters that are trapped under a layer of salt.

Petrobras has lost 15 percent for investors this year in U.S. dollar terms, the worst performance by a global oil company with a market value of more than $50 billion, according to data compiled by Bloomberg.

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