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Brazil’s Petrobras Posts Surprise Profit Decline on Costs

Petroleo Brasileiro SA, the world’s biggest oil producer in deep waters, said third-quarter profit fell 12 percent, missing analysts’ forecasts, after fuel imports pushed up costs and crude output slipped.

Net income declined to 5.57 billion reais ($2.7 billion), or 43 centavos a share, from 6.34 billion reais, or 49 centavos, a year earlier, the Rio de Janeiro-based company said today in a statement. Per-share profit excluding some items trailed the 58-centavo average of seven analysts’ estimates compiled by Bloomberg.

Fuel imports are curbing profit as imported gasoline and diesel prices exceeded those in Brazil. In the quarter imported gasoline cost about 10 percent more than domestic fuel because the government, which control’s Petrobras’ board, fixed prices to rein in inflation, said Lucas Brendler, who helps manage about 6 billion reais at Banco Geracao Futuro de Investimentos.

“You are still importing at a price much higher than you are selling in the downstream,” Brendler said in a telephone interview from Porto Alegre, Brazil, before the report was released. “They have to solve this problem.”

Price Increases

Petrobras increased prices for gasoline and diesel by 7.8 percent and 3.9 percent, respectively, on June 25, and then lifted diesel prices an additional 6 percent on July 12 to reduce the discount with international prices. Still, Petrobras sells imported fuel at a loss and strong demand from farmers during Brazil’s harvest season increased third-quarter imports, Jose Consenza, the head of refining at Petrobras, said in Rio de Janeiro on Oct. 9.

“The downstream side of the house is really where they took a hit,” Gianna Bern, president of risk-management consultant Brookshire Advisory & Research, Inc. in Chicago, said by telephone today. “You layer on the weaker Brazilian currency and it’s a recipe for a challenging quarter.”

Petrobras’s refining, transport and logistics division posted a loss of 5.65 billion reais compared with the 3.17 billion-real loss a year ago.

Brent oil for December settlement rose 1 percent to close at $109.55 a barrel on the London-based ICE Futures Europe exchange today.

Largest Discovery

Petrobras is heading for its first annual decline in output since 2004 after production slid for three months to 2.54 million barrels a day in August, the lowest since October 2010. Petrobras’s production fell 0.5 percent in the first nine months of the year to an average of 2.59 million barrels a day. Petrobras plans to more than double output to 5.7 million barrels a day in 2020.

Petrobras is investing $236.5 billion over five years to build refineries, develop deep-water fields and ramp up output at Lula, the largest discovery in Brazil’s history. Petrobras produces more oil than any other company in waters deeper than 1,000 feet (305 meters) and is building dozens of platforms and drill ships to expand output.

Investments rose 18 percent to 59.8 billion reais in the first nine months of the year, with 48 percent of spending dedicated to exploration and production and 37 percent to refining, the company said.

Petrobras rose 1.6 percent to 22.10 reais in Sao Paulo today. The earnings report was released after the end of regular trading.

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