Oil price plunge boosts Petrobras

http://www.ft.com/cms/s/0/d29bca14-fb62-11e4-9fe6-00144feab7de.html#ixzz3aI2I9nSA

May 16, 2015 1:49 am

Oil price plunge boosts Petrobras

Samantha Pearson in São Paulo/FT

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Petrobras, the oil producer engulfed in Brazil’s biggest corruption scandal, has delivered rare good news for investors after plunging global oil prices slashed the company’s import costs.

The Rio de Janeiro-based company reported net profit of R$5.33bn ($1.78bn) for the first three months of this year — a 1 per cent decline from the first quarter of 2014 but over twice as much as the R$2.5bn average forecast by analysts in a Reuters survey.

Net sales totalled R$74.35bn in the first quarter, down from R$81.55bn last year, according to a regulatory filing late on Friday.

While sharp falls in global oil prices have wreaked havoc in the industry, they have brought some short-term relief for Petrobras, which has been forced to import fuel and sell it at a loss in Brazil in recent years to help the government limit inflation.

Between 2011 and 2014, Petrobras lost approximately R$60bn as a result of the fuel subsidies, far outweighing the estimated R$6.2bn losses from a vast kickback and bribery scheme enveloping the company.

However, falling global prices and the Brazilian government’s decision to allow the company to raise diesel and petrol prices by 5 and 3 per cent respectively in November have finally brought domestic prices on a par with international levels.

Aldemir Bendine, Petrobras’s new chief executive, said the company’s profit had also been boosted by an 11 per cent increase in oil and gas production from the same quarter last year.

R$5.33bn

Net profit for the first three months of this year

He attributed the 1 per cent decline in net profit to the sharp devaluation of the Brazilian currency — in the first quarter, Brazil’s real weakened 21 per cent against the dollar, increasing the value of the company’s dollar-denominated debt.

“Our objective is to develop a company that is profitable, with excellent governance, and that is able to use its base of assets in an efficient way,” Mr Bendine said in the earnings report, adding that the company was working hard to reduce its huge debt pile.

The results come only three weeks after Petrobras averted possible bankruptcy by releasing its delayed audited full-year financial statements for 2014 — a requirement of its bond covenants.

Our objective is to develop a company that is profitable, with excellent governance, and that is able to use its base of assets in an efficient way

– Aldemir Bendine, Petrobras chief executive

However, while the company averted immediate crisis, it still faces huge challenges, analysts say. The falling global oil price has threatened the viability of its deepwater oil exploration projects, while the company is struggling to sell assets to reduce its total debt of R$400bn.

Meanwhile, investigations into wrongdoing at the company are expected to cast a shadow over Petrobras for years. This week, prosecutors charged four former members of Congress over the scandal — the first lawmakers to be formally accused in the case.

Brazil’s stock market regulator, CVM, this month also announced an investigation into the former board of Petrobras, including ex-finance minister Guido Mantega, over the company’s controversial fuel subsidies.

Copyright The Financial Times Limited 2015.