Petrobras Sinks on Dividend Cut as Earnings Decline

Petroleo Brasileiro SA’s voting shares plummeted to the lowest since 2005 after the state-run oil producer said it will reduce dividends as earnings before items unexpectedly dropped.

Voting shares of Petrobras, as the Rio de Janeiro-based oil producer is known, fell 8.3 percent to 16.60 reais, the lowest closing price since August 2005. Preferred shares, the most traded, rose 0.4 percent after falling as much as 4.1 percent to 17.26 reais, the lowest intraday level since November 2008.

Petrobras, the worst-performing major oil producer in the past year, will pay voting stockholders 3.5 billion reais ($1.76 billion), or 47 cents a share, while preferred shares will get 5.4 billion reais, or 96 cents, according to an earnings report posted yesterday. Earnings before interest, taxes, depreciation, and amortization fell 17 percent in the fourth quarter from the previous to 11.9 billion reais, missing the 14.6 billion-real average of eight analysts’ estimates compiled by Bloomberg. Debt rose, while annual output declined.

“We expect the poor results and the more rapid increase in indebtedness to weigh on the stock’s performance,” Itau Unibanco Holding SA analysts Paula Kovarsky and Diego Mendes wrote in a research report today. “Production is unlikely to show consistent improvements anytime soon.”

This year will be the first in more than a decade that Petrobras will pay lower dividends to voting stockholders than to non-voting investors, Kovarsky said. Differentiating the payments will allow the company to cut total dividends by 1.8 billion reais, BES Securities analyst Oswaldo Telles Filho said in a report today.

‘Preserve Cash’

Chief Financial Officer Almir Barbassa, speaking to analysts on a conference call today, said the reduced payment to voting shareholders is intended to preserve the company’s cash position.

Fuel imports are curbing earnings as Petrobras pays more for gasoline and diesel bought abroad than it charges distributors because the government, which controls the company’s board, fixes prices to rein in inflation. The company increased total debt 26 percent last year to 196 billion reais to fund investments, while posting the first annual decline in output since 2004.

Petrobras, the world’s most indebted publicly traded oil company, is selling imported fuel at a 12 percent loss even after increasing prices last month, Auro Rozenbaum, an analyst at Bradesco SA who has the equivalent of a hold rating on the stock and doesn’t own any, wrote in a research report before the release. The company raised gasoline and diesel by 6.6 percent and 5.4 percent, respectively, on Jan. 30.

Fuel Imports

Fuel imports climbed to 505,000 barrels a day from 437,000 in the third quarter and 394,000 in the year-earlier period, Petrobras said.

Net income rose more than estimated after a 2.1 billion-real, one-time tax benefit and the sale of treasury bills helped offset the rising import costs. Profit was 7.7 billion reais, or 59 centavos a share, up from 5.05 billion reais, or 39 centavos, a year earlier. Per-share profit topped the 51-centavo average of 12 analysts’ estimates compiled by Bloomberg. Profit rose 39 percent from the previous quarter.

Sales fell to 73.4 billion reais from 73.8 billion in the previous quarter. They rose from 65.3 billion a year earlier.

Annual production slid 1 percent to 2.6 million barrels a day of oil and natural gas. Crude output fell for the first time since 2007. The drop followed a 1.5 percent rise in 2011 to 2.62 million barrels a day on average, the slowest gain since 2007.

Output may decline again this year, Chief Executive Officer Graca Foster told analysts on a conference call today.

Deepwater Projects

“Realistically, deepwater projects are going to evolve over many years,” Gianna Bern, president of risk-management consultant Brookshire Advisory & Research Inc. in Chicago, said in a telephone interview. “Petrobras does have the near-term challenge of dealing with mature projects in the Campos basin, while bringing deepwater projects online. This is currently reflected in production declines,”

Petrobras plans to borrow $16 billion a year through 2016 to finance its $236.5 billion business plan. This year, it intends to invest 97.8 billion reais, up from 84.1 billion in 2012.

The company is building refineries, developing deepwater fields and ramping 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 drillships to expand output.

Investment Plan

Petrobras increased its five-year investment plan 11 percent last year as it develops reserves it bought from the government in 2010 as part of its $70 billion share sale, the largest in history. The company acquired the right to develop about 5 billion barrels of oil near Lula, Brazil’s biggest field.

In addition to developing Lula, Petrobras will take a minimum 30 percent stake in the government’s Libra deposit when it’s auctioned. Lula and Libra are the Americas’ biggest oil discoveries since Mexico’s Cantarell in 1976. The fields are in a deepwater region known as the pre-salt along Brazil’s coast.

Production costs fell 10 percent from the previous quarter to $13.94 a barrel due to higher output in the quarter and a drop in labor costs. Chief Executive Officer Maria das Gracas Foster has announced plans to cut costs as much as 32 billion reais through 2016 to improve the Rio de Janeiro-based company’s finances.

Cost Cuts

“Petrobras is indeed cutting whatever it can, they’re going over the costs,” Jansen Moura, a fixed income analyst at BCP Securities LLC, said by phone from Rio de Janeiro, before the results were released.

Petrobras, which had a market value of about $118 billion at the end of trading, has slid 7.8 percent this year. Of the 21 analysts who rate the company and are tracked by Bloomberg, 12 recommend buying the stock, eight have a hold rating and one has a sell recommendation.

The world’s biggest oil producer in deep waters has lost investors 36 percent in the past year in U.S. dollar terms compared with a 29 percent gain by Colombia’s Ecopetrol SA, according to data compiled by Bloomberg.

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