Sales Go Up at Brazil’s Petrobras, But Profit Falls 38%

Petrobras refinery in Pasadena, near Houston, Texas Brazil's government controlled hydrocarbons company Petrobras said first-quarter profit fell 38% as oil prices dropped and costs rose. Net sales rose 8.4% to 38.98 billion reais (US$ 19.44 billion) but net income dropped to 4.13 billion reais (US$ 2.05 billion). The company made 6.68 billion reais (US$ 3.33 billion) in the first quarter of 2006.

"Costs are rising and the company doesn't raise prices to cover them," said Luiz Otávio Broad, oil and gas analyst with Agora CTVM, Brazil's largest stock brokerage.

While Petrobras hasn't raised Brazilian gasoline and diesel prices for 20 months, aviation fuel, fuel oil and naphtha fell along with an 8.3% slide in world oil prices.

Meanwhile, the cost of oil platforms, labor, and steel pipe and other goods and services are soaring with Petrobras' operational costs climbing 58% in the quarter. Oil prices averaged US$ 58.23 p/b in the quarter, compared with US$ 63.48 a year earlier.

Petrobras Chief Financial Officer Almir Guilherme Barbassa said the board approved a 2-for-1 stock split on the company's American depositary receipts. According to a statement sent to U.S. and Brazilian regulators, after the split, each ADR will represent two Brazilian shares of Petrobras, down from four currently.

Last April 11, Brazilian president Luiz Inácio Lula da Silva, told investors they had to accept the government's plan to use the company to promote its economic development goals. Lula spoke at an event where Petrobras signed a contract with a Rio de Janeiro shipyard.

Lula da Silva won election for the first time in October 2002 on a platform promising to revive Brazil's ship-building industry. Petrobras is spending US$ 2.5 billion to build 26 tankers and support ships in Brazil.

The Lula da Silva administration government has also moved to have Petrobras expand its electricity generation capacity and gas-pipeline system to reduce the chance of energy shortages.

The gasoline and diesel price freeze has helped control consumer price inflation, and laws requiring Petrobras to use alternative fuels – a quarter of all gasoline sold in Brazil is made up of ethanol – have helped farmers.

Barbassa said the company has no reason to increase prices of its main products, such as gasoline and diesel fuel, because the trend for prices doesn't justify it.

"We don't change our domestic fuel prices on every fluctuation in world prices," he said in an interview. "I see no reason to raise or lower prices right now."

Earnings before interest, taxes depreciation and amortization, or EBITDA, the most common measure of the company's ability to generate cash from operations, dropped 22% to US$ 11 billion reais from US$ 14.1 billion reais a year earlier."

However Barbassa said margins may remain lower than in the past as the company moves to expand abroad. Commercial refining margins at its Pasadena, California refinery will be lower than in Brazil as the company does not have its own source of crude oil and will buy from the market, including Petrobras.

"Investors approve efforts to expand," said Paulo Roberto Costa, head of refining at Petrobras, adding that "margins on trading are lower but if we want to expand we have to go into these businesses."

Petrobras' domestic oil and gas production rose 3% from a year earlier. The company produced 1.8 million barrels a day compared with 1.75 million last year. Total world output climbed 1% to 2.31 million barrels a day.

A decline in the value of Brazil's real against the dollar also boosted financial costs, reducing the local-currency value of dollar-denominated oil and fuels exports. Currency exchange-related losses were 736 million reais compared with a gain of 270 million reais in the year-earlier period.

Brazil's real averaged 2.11 to the dollar in the first quarter of 2007, which is 3.7% less than the 2.19 to the dollar average a year earlier.



  • Show Comments (6)

  • AES

    Accelerated depreciation was what was implemented in the U.S. in the 80’s to jump start an economy with 22% interest. The best economic models to follow are those that are proven to have been successful. If you do not know what the concept is you might want to google it.

  • AES

    It provides employment and the creation of industry. There is no amortizement of a new gas or oil field.

  • AES

    It is axiomatic that you have to spend money to make money. The development of energy infrastructure self evidently increases the value of Petrogras. The investment in ship building, refining, the development of pipe lines, and increased development of new gas and oil fields, all add to the value of Petrobras.

    The $R is not 2.11 but $R 1.997 so the information contained in the article is in need of revision.

  • ch.c.

    Furthermore, the NOT SO GREAT…..Brazilians should review what they write…….
    …….A decline in the value of Brazil’s real against the dollar also boosted financial costs !!!!!!!!!!

    Quite strange, when the exact opposite happened ! There WAS NO DECLINE IN THE VALUE OF BRAZIL’S REAL AGAINST THE DOLLAR !!!!
    There was an appreciation of the Brazilian Real against the US$.

    And despite the increased value of the Real, which should in fact have provided more US$ profits, the end results was anyway a sharp profit decline in BOTH the Brazilian Real AND in US$…..which matters even worse.

    But afterall, quite normal, such a statement comes from a Brazilian highly educated people ! Correct ?

    As toAES comment : “The investment in ship building, refining, the development of pipe lines, and increased development of new gas and oil fields, all add to the value of Petrobras”

    Sorry Junkie, but a pipeline, ships, lose value overtime . This is why ALL companies in the world…..AMORTIZE…..their investments.

    Have you already heard that a 20 years old ship has more value than a new ship?
    Same question for machinery, computers, drilling platforms, trucks, cars, tractors, harvesters or whatever !!!!!!

  • ch.c.

    It is axiomatic that you have to spend money to make money. ????
    Has anyone ever made money…without spending by investing money ?????
    Yessssss….of course….the Brazilian politicians, all corrupted to the roots.

    As to Petrobras, quite normal they are making less money. The company is controlled by the government. The government does not want
    inflation. Thus it simply gives instructions to Petrobras NOT to raise price !!!!

    Simple….OLD trick…..used already many times by Brazil and most of LATAM countries.

    Brazil is in no way a free market, since everything is government controlled. Same as Argentina with Kirchner !
    Except that Kirchner defends his ideas (wether right or not) but he publicly express that HE took the decisions, while Lula never ever
    says what he ordered to the companies controlled by the government.

  • conceicao

    A bunch of bureaucrats and politicians spending their time stuffing oil money in each others underwear is no way to spur economic development. The price of the stock would rise 50% if all this nonsense
    stopped. Much better to place the government’s Petrobras stock in a trust dedicated to (1) road and infrastructure improvement (2) pension and entitlement reform, i.e. buy out the old system and at least get
    the policy makers off of the pension needle going forward or (3) funding the Bolsa Familia and other programs for the poorest of the poor – or some combination of the above – with the government agreeing
    to leave the company alone forever.

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