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Petrobras Rebounds as Forecasts Signal Less Import Losses

Petroleo Brasileiro SA rebounded from the biggest slump in four months after Brazil’s state-run crude producer forecast increased oil exports and fuel output.

After posting an unexpected second-quarter profit decline on higher fuel imports and lower oil exports, Petrobras said in a presentation today that sales to overseas markets probably would surge 51 percent in the second half while refinery production would rise 4 percent. That signals a reduction in losses from selling imported fuel at below global prices.

“There’s a lot of new oil we’ll have in the coming weeks and months,” Jose Formigli, who heads exploration and production, said today on a conference call with analysts.

Petrobras, based in Rio de Janeiro, rallied 4.3 percent to close at 20.14 reais in Sao Paulo after tumbling 4.2 percent on Aug. 8.

Earnings of the biggest crude producer in ultra-deep waters has disappointed analyst in three of the past four quarters. Crude exports fell 14 percent in the second quarter from a year ago while an increase in fuel output wasn’t enough to prevent a 56 percent surge in imports, which are sold at a loss because of price caps. President Dilma Rousseff’s government, which controls Petrobras with a majority of voting shares, has prevented the company from increasing prices enough to erase import losses as it seeks to keep inflation in check.

The fuel subsidy policies have weighed on the shares, which have lost investors 37 percent in the past four years, making it the worst performer of the 20 most valuable major oil producers, according to data compiled by Bloomberg.

The company’s fuel imports jumped to 407,000 barrels a day in the quarter, from 261,000 a year earlier. Daily crude exports fell to 308,000 barrels from 359,000.

Profit Surprise

In today’s presentation, Petrobras said it expects crude exports to average 250,000 barrels a day in the second half. Output at the company’s pre-salt fields reached a record 546,000 barrels on July 13.

Net income fell 20 percent to 4.96 billion reais ($2.2 billion), or 38 centavos a share, from 6.2 billion reais, or 48 centavos, a year earlier. That trailed the 55-centavo average of 12 analysts’ estimates compiled by Bloomberg.

“Brazil’s domestic pricing for gasoline and diesel, which has ranged between 10 percent and 20 percent below international pricing, depending on the exchange rate, puts a significant drag on Petrobras’s profitability,” Moody’s Investors Service said in a July 29 research report.

The government probably won’t authorize a fuel price increase before elections in October, Eurasia Group said in a Aug. 6 note to clients.

‘Seeking Convergence’

“We are seeking convergence with international fuel prices in Brazil” to help meet the company’s internal financial targets, Chief Executive Officer Maria das Gracas Foster wrote in the earnings report. “I reassure investors and stockholders that the increasing production of oil, natural gas and derivatives, especially diesel and gasoline, is already a reality on a daily basis.”

Petrobras plans to boost domestic crude output 7.5 percent this year as it connects wells to production equipment in deep waters of the Atlantic. The company’s domestic output rose 2 percent in July from the prior month to 2.049 million barrels a day as it increased production at two new platforms. This month it surpassed 2,100 barrels a day as the company added wells to new platforms, Formigli said

A combination of equipment delivery delays, unplanned maintenance at offshore platforms and faster-than-expected declines at the company’s legacy fields in the Campos Basin has left production little changed since 2010.

Target Risk

Analysts from Banco Santander SA and Banco Bradesco SA have warned that the slower-than-forecast expansion so far is putting this year’s goal at risk even though new wells and production vessels are expected to accelerate growth in the second half.

Investors aren’t counting on Petrobras meeting its targets this year, Eric Conrads, who helps oversee $500 million in Latin American stocks as a money manager at ING Groep NV, said.

The stock has gained 14 percent this year on speculation the presidential elections in October will herald more investor-friendly policies. It slumped Aug. 8 after a poll showed Rousseff winning re-election in a possible runoff.

The shares traded at 10.7 times estimated profit on July 22, the highest since November. The ratio is 9.9 today.

“The continually weak results and balance sheet are not being reflected in the stock’s stretched valuation multiples that show the stock trading at a premium to both global peers as well as to the company’s historical averages,” Banco Santander SA analysts Christian Audi and Gustavo Allevato wrote in a note to clients dated today.

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