Petrobras Quarterly Earnings Exceed Estimates on Fuel

Petroleo Brasileiro SA, the world’s biggest crude producer in deep waters, reported second-quarter profit that exceeded analysts’s forecasts on increased fuel output and a currency hedge that narrowed financial losses.

Net income was 6.2 billion reais ($2.7 billion), or 48 centavos a share, compared with a loss of 1.35 billion reais a year earlier, Brazil’s state-controlled producer said today in a regulatory statement. Per-share profit excluding some items was expected at 45 centavos, the average of 13 analysts’ estimates compiled by Bloomberg.

Petrobras, based in Rio de Janeiro, lifted output of refined products 6.5 percent to 2.1 million barrels a day, reducing the amount of diesel and gasoline it sold under subsidized prices. Fuel imports fell 47 percent to 261,000 barrels a day while sales rose 8.2 percent to 73.6 billion reais compared with the 74.7 billion-real average estimate.

“In refining, we continued operating with excellent levels of efficiency,” Chief Executive Officer Maria das Gracas Foster said in the statement. “On June 29 and 30 our refining network reached a record of 2.2 million barrels a day.”

Brazil’s government, which control’s Petrobras’s board through a majority of voting shares, hasn’t adjusted fuel prices since March in a bid to control inflation. Petrobras has increased prices for gasoline 15 percent and diesel 22 percent since June 2012 to reduce the discount with international prices. Losses at Petrobras’s refining and supply division narrowed 62 percent to 3.8 billion reais.

Currency Hedge

Petrobras began adopting accounting practices in May that allow exporters to reduce the effect of currency fluctuations on earnings. The change averted 7.98 billion reais in financial losses during the quarter, Petrobras said.

A weaker real hurts Petrobras’s profit as the value of the company’s dollar-denominated debt increases, Chief Financial Officer Almir Barbassa said in an interview last year. Brazil’s real was the worst-performing emerging market currency in the quarter after losing 9.4 percent against the U.S. dollar.

Petrobras’s royalties and taxes, which are partially based on Brent oil prices, fell 5.3 percent from a year earlier to 7.2 billion reais.

Fuel Prices

The decline in the oil price in the quarter had less of an impact on Petrobras than other large producers because fuel prices were little changed in Brazil, Auro Rozenbaum, an analyst at Banco Bradesco SA, said by telephone from Sao Paulo before the earnings report was released.

“When oil prices go down, revenue stays stable, and costs plunge because the government take goes down,” said Rozenbaum, who rates the shares hold and doesn’t own any. “When you have diesel and gasoline prices fixed, the company is short in oil.”

Petrobras used a Brent price of $102.44 a barrel to calculate second-quarter results, down from $108.19 a year ago, according to the statement.

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