Petrobras results jump on rising oil prices
With doubt from corruption probes mostly over, firm plans to boost offshore production
SAO PAULO— Brazilian oil major Petróleo Brasileiro SA’s profit jumped in the third quarter from a year earlier, boosted by a rise in the price of oil.
Net income attributable to Petrobras shareholders reached 6.6 billion reais ($1.8 billion (U.S.)), soaring from 266 million reais in the third quarter of 2017, while sales revenue rose to 98.3 billion reais from 71.8 billion reais, the company said.
Petrobras agreed at the end of September to pay $853.2 million to Brazilian and U.S. authorities to end yearslong investigations into company corruption. Excluding those settlement costs, Petrobras would have had a net income attributable to shareholders of 10.3 billion reais, the company said.
Adjusted earnings before interest, taxation, depreciation and amortization came to 29.9 billion reais compared with19.2 billion reais a year earlier.
The net income and adjusted Ebitda figures came in lower than expected, according to Gabriel Francisco, an analyst at XP Investimentos in São Paulo. He nevertheless still rates the company’s shares as a “buy” because of its plans to boost production from its pre-salt fields, among other things.
Petrobras’s preferred shares fell more than 3% shortly after the open.
With uncertainty about the corruption probes mostly over, the company plans to ramp up output from its offshore fields in the pre-salt area, so called because the oil deposits are located in deep water off the coast of São Paulo and Rio de Janeiro states, under the ocean floor, beneath thick layers of salt. Petrobras has been increasing production from the pre-salt wells while at the same time cutting costs, which will keep operations profitable even if the price of oil falls much lower than it has recently, analysts say.
The company’s “cost advantage in pre-salt is its big ace in the hole,” Mr. Francisco said.
Even with the advantages from its pre-salt production, Petrobras still faces potential challenges. The state-controlled company has faced government interference in the past, most recently in 2011-2014 during the administration of Brazilian President Dilma Rousseff, which forced Petrobras to maintain fuel prices artificially low to help keep inflation under control.
With the presidential victory of market-friendly Jair Bolsonaro, who has signaled he won’t meddle with the company’s operations, the outlook for Petrobras has improved, according to Paul Cheng, an analyst at Barclays Capital.
“What he says sounds great, and if he does what he says, then you probably want to own Petrobras,” Mr. Cheng said. “But talk is cheap, so we’ll be watching his actions.”
Following Ms. Rousseff ’s ouster at the end of an impeachment process, her successor and former Vice President Michel Temer allowed Petrobras to set fuel prices based on market conditions, boosting income and permitting it to cut net debt from just over $100 billion at the end of 2015.
Petrobras said Tuesday net debt fell to $72.9 billion at the end of the third quarter, from $73.7 billion at the end of the previous three-month period and from $84.8 billion at the end of 2017. The company has embarked on a program of asset sales as part of its effort to cut debt, and it has made some progress despite court cases that have held up some of the bigger disposals. Last week Petrobras announced an agreement to sell its half of a joint venture that owns stakes in oil fields in Nigeria for about $1.5 billion.
As long as Petrobras avoids government interference into its price policy, the company should be able to generate enough cash to cut its debt even without asset sales, according to XP Investimentos’s Mr. Francisco.
“It’s still in good shape,” he said.