Petrobras Q4 income plunges, challenges new CEO

10 February 2012, Sweetcrude, RIO DE JANEIRO – Petrobras’s profit plunged 52 percent in the fourth quarter of last year, beating back expectations that the company can control the cost of an ambitious expansion plan.

It is a major challenge to the company’s new chief executive officer, Maria das Gracas Foster, who takes over the post from outgoing CEO, Jose Sergio Gabrielli, on Monday.

Fourth-quarter net income fell to 5.05 billion reais ($2.94 billion) from 10.60 billion reais in the year-earlier quarter, as rising operating costs ate into an increase in revenue, the company said in a statement to Brazilian securities regulators.

The average estimate of 10 analysts surveyed by Reuters was for a profit of 9.20 billion reais.

Foster, 58, who was approved in her post on Thursday shortly before Petrobras released its results, will have to manage a $225 billion five-year investment programme – the world’s largest oil spending plan — that keeps growing.

Petrobras also on Thursday boosted its planned order for offshore drilling rigs to 26 from 21, and agreed to pay $76.3 billion over 15 years to lease the vessels in its largest ever contract, a company executive told Reuters.

The order continues a six-year spending spree under Foster’s predecessor Jose Sergio Gabrielli to help Brazil challenge the U.S. as the world’s No. 3 oil producer, behind Russia and Saudi Arabia, by 2020.

Gabrielli committed Petrobras to nearly triple its output to 6.4 million barrels a day in 2020. Despite the heavy spending, in December 2011 Petrobras’s global output of 2.72 million barrels a day was lower than a year earlier.

Optimism over personell changes and management’s ability to control costs and boost output helped Petrobras shares rise more than 18 percent this year, wiping out hefty losses in 2011, said Luiz Otavio Broad, oil and gas analyst with Agora Corretora in Rio de Janeiro.

“Petrobras needs to grow its production at a faster pace,” Broad said before results were released. “This year is unlikely to be much better, but the company should start turning the corner in 2013. There is a lot of value there.”

The profit decline was driven by a 675 million reais charge for “impairment” related to the reduction in value of unnamed assets on Petrobras’ books, Petrobras said.

The company also saw exploration and production costs rise as a result of the operation of wells nearing depletion. Wages also rose after a labor agreement. The cost of producing each barrel of oil, or the “lifting” cost rose to $7.02 dollars a barrel from $6.08 a barrel.

Net sales rose 20 percent to 65.3 billion reais from 54.2 billion reais a year earlier, less than the 67.2 billion reais expected by the analysts.

On a quarter-on-quarter basis, a closely followed gauge of earnings performance, net income fell 20 percent from 6.3 billion reais.

Earnings before interest, taxes, depreciation and amortisation, a gauge of a company’s ability to generate cash from operations known as EBITDA, fell 2 percent to 14.1 billion reais from 14.3 billion reais in the fourth quarter of 2010.

Output in 2011 was limited by unscheduled maintenance on ageing offshore platforms in the Campos Basin where Petrobras gets more than three-quarters of its output. The shutdowns and repair work, which followed safety and environmental complaints, is likely to continue this year though at a slower pace, Broad said.

Petrobras aims to add 480,000 barrels a day of output in 2012, but a third of that may not come on stream by the deadline.

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