Petrobras Ebitda Seen Rising on Reduced Refining Losses

Petroleo Brasileiro SA is forecast to report increased quarterly earnings after the Brazilian government granted a fuel price increase that reduced the state-run producer’s refining losses.

Petrobras, as the Rio de Janeiro-based company is known, probably had earnings before interest, taxes, depreciation and amortization of 15.9 billion reais ($6.8 billion) in the three months through December, according to the average estimate of six analysts tracked by Bloomberg. That’s an increase of 57 percent from the year ago period. The producer is scheduled to report earnings after the close of trading today.

The company is poised to post higher quarterly Ebitda after Brazil agreed to increase subsidized gasoline and diesel prices, reducing Petrobras’s losses on higher priced imported fuels. Chief Executive Officer Maria das Gracas Foster is seeking to close a fuel price gap that reduced third-quarter profit by the most among major producers.

“The price adjustments were quite important to minimize the effects of losses from Petrobras’s imports,” said Lucas Brendler, an analyst at Geracao Futuro Corretora in Porto Alegre, Brazil. “When you have an increase in gasoline prices here you reduce your gap” with global prices, he said by phone.

Price increases of 4 percent for gasoline and 8 percent for diesel that took effect Nov. 30 were the first in nine months. The fourth-quarter gap between international and domestic prices was 11 percent for gasoline and 19 percent for diesel, according to Deutsche Bank SA estimates.

Fuel Imports

Petrobras ran its 11 crude refineries at an average 92 percent of capacity last year as it boosted output in an attempt to lower reliance on imported fuel. The over-stretching of workers and machinery was one of the reasons behind fires at two plants in two-and-a-half weeks between December and January, according to the oil union.

A press officer at Petrobras, based in Rio de Janeiro, didn’t have a comment when contacted by Bloomberg.

With two refineries under construction, the refining division accounts for 34 percent of Petrobras’s $237 billion, five-year investment plan. The bulk of the plan is focused on the exploration and production division that’s seeking to develop the offshore pre-salt oil reserves.

Refining Losses

The company’s $112 billion in debt makes it is the most indebted oil company in the world, according to data compiled by Bloomberg. Given the financial needs to develop pre-salt reserves, Petrobras will have to include “higher debt issuance needs” in its updated five-year plan, said Christopher Buck, an analyst at Barclays Plc, in a note to clients.

Petrobras is expected to post fourth-quarter profit per share of 41 centavos, according to the average estimate of 12 analysts tracked by Bloomberg. The stock slid 2.1 percent to 14.19 reais at 1:57 p.m. in Sao Paulo.

Higher debt is coupled with the company’s expectation that it won’t generate positive cash flow until 2016, while posting the highest negative cash flow among global oil producers. The refining division lost $35 billion since the government started using the company to subsidize fuel prices in 2011.

In October, Petrobras presented a proposal to the board to create a methodology for adjusting prices automatically. On Nov. 29, the board authorized the first fuel-price increase in nine months without divulging a formula for future adjustments. The stock plunged 9.2 percent the next trading day.

Slowing Economy

In the face of concerns over weak economic growth this year in Brazil, the government is unlikely to change its stance on fuel prices any time soon as it prepares for presidential elections in October, Joao Castro Neves, an analyst at Eurasia Group, said by telephone from New York.

Brazil’s government expects the economy to grow 2.5 percent in 2014 and inflation to reach 5.9 percent.

After the stock slumped 18 percent in the past year, 14 of 19 analysts covering the company recommend buying. The other five have a hold rating.

Fourth-quarter “earnings could be a short-term positive for the stock, even though debt ratios are expected to continue deteriorating,” Marcus Sequeira, an analyst at Deutsche Bank AG, who has a hold recommendation, said in a note to clients. “Losses at refining are expected to be lower.”