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Worst Performer Petrobras Snaps Profit Streak on Currency

Petroleo Brasileiro SA, the worst-performing global oil company this year, unexpectedly reported its first quarterly loss in 13 years as local currency depreciation pushed up costs. Shares fell.

Petrobras had a loss of 1.35 billion reais ($666 million), compared with a 2.94 billion-real average profit estimate in a Bloomberg survey and a year-ago profit of 10.9 billion reais. The real’s 9.1 percent second-quarter drop raised the cost of equipment and services in dollars while lower output, costs related to dry holes and fuel import losses also hurt earnings.

Petrobras shares slumped as much as 5.6 percent in Sao Paulo today before paring the loss to close down 0.1 percent at 19.92 reais. Brazil’s Bovespa index surged 1.9 percent.

“Most of the factors that drove the negative results will not be repeated,” Auro Rozenbaum, an analyst at Bradesco SA, said in a telephone interview from Sao Paulo. “If we remain stable in most parameters, I would expect profitability of 10 billion to 12 billion reais in the coming quarters.”

The company based in Rio de Janeiro had its first quarterly loss since 1999, according to data compiled by Bloomberg, as Brazil’s real fell the most among 16 major currencies.

Dry Wells

Petrobras wrote down 2.7 billion reais from 41 dry wells dating back to 2009 that won’t be repeated in upcoming quarters, the company said.

Imported gasoline cost 22 percent more than domestic fuel in the quarter because the government, which controls Petrobras’s board, fixed prices to rein in inflation, Rozenbaum said. The gap now stands at about 15 percent after a price increase in June, he said.

Petrobras posted a financial loss of 6.4 billion reais in the quarter, compared with a gain of 2.9 billion reais in the year-ago period. 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 have a lot to do to improve results,” Chief Executive Officer Maria das Gracas Foster told reporters today. “Reducing whenever possible operating costs.”

Production rose 1.5 percent last year to an average 2.62 million barrels a day, the slowest rate since 2007. 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.

Fuel Prices

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.

“Posting a net loss, when crude oil prices are in the $90-per-barrel range is problematic,” said Gianna Bern, president of Brookshire Advisory & Research Inc. in Chicago.

Investment Plans

Oil for September delivery slid 66 cents, or 0.7 percent, to $90.74 a barrel at 9:15 a.m. on the New York Mercantile Exchange. It rallied 4.9 percent on Aug. 3, the biggest gain since June 29. Prices are 8.2 percent lower this year.

Petrobras 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.

“I’m confident in the recovery and the strength of the company,” Foster said today. “We’re recovering efficiency and we’re going to increase production in the fourth quarter.”

Petrobras has lost 13 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.

Download: Earnings

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