Petrobras had a good financial performance in 2Q19, although we benefited from external factors beyond our control, such as oil prices, the BRL/USD exchange rate and crack spreads, and non-recurring events, such as assets divestments.
Accounting net income excluding non-recurring factors was R$ 5.2 billion and operating cash flow reached R$ 20.5 billion. Advances in pre-salt exploration, with lower lifting cost (US$ 6/boe) and better quality of oil, allowed adjusted EBITDA per barrel of oil equivalent (boe) in the exploration & production (E&P) business to reach US$ 33.50 in 2Q19 against US$ 29.50 last year, despite the drop in average Brent oil prices from US$ 71.0 to US$ 68.8.
Our gross debt (including the effects of IFRS 16) remains at a high level, at US$ 101.0 billion, with leverage ratios ranging from 2.5x to 3.0x, depending on the metric used. Petrobras is still facing excessive financial leverage for a commodity producer which is therefore exposed to price and, consequently, cash flow volatility. Financial charges still consume around 40% of operating cash flows, which evidences the need for divestments to reduce debt.
Highlights of 2Q19 Results
- Adjusted EBITDA of R$ 32.7 billion, 19% higher than 1Q19, reflecting the increase in Brent prices and the appreciation of the dollar against the brazilian real, which led to higher oil prices.
- The Company posted net income of R$ 18.9 billion, 4.6 times the net income of the previous quarter, mainly due to the conclusion of the TAG sale.
- Excluding the effects of non-recurring itens and IFRS 16, the Company’s net income would have been R$ 5.2 billion and adjusted EBITDA * would have been R$ 33.4 billion.
- As we expect higher net income for fiscal year 2019, the Board of Directors approved the anticipated distribution to shareholders in the form of interest on equity (JCP) in the amount of R$ 2.6 billion, equivalent to R$ 0.20 per common and preferred share, two times the amount of the previous quarter.
- Free cash flow was positive for the seventeenth consecutive quarter, totaling R$ 11.3 billion. This result was obtained by operating cash flow, for the same reasons that positively impacted EBITDA, and the reduction in investments relative to 1Q19.
- In 2Q19, net debt continued its downward trend, ending the quarter at US$ 83.7 billion, a decrease of US$ 14.3 billion compared to 1Q19. In the quarter, we amortized US$ 2.2 billion, and new funding amounted to US$ 488 million only.
- In 2Q19, the adjusted net debt / LTM EBITDA * ratio fell to 2.52x from 2.89x in 1Q19. Applying the effects of IFRS 16 were applied throughout the 2018 adjusted LTM EBITDA period. However, without considering these effects the ratio would have been 2.02x.
- In order to reduce the risks associated to contingencies, we recognized expenses in 2Q19 of R$ 1.2 billion to settle tax and environmental disputes totaling a potential exposure of R$ 6.4 billion. These expenses are related to the ICMS tax amnesty program in the states of Bahia and Ceará (expense of R$ 367 million for an exposure of R$ 1.8 billion) and environmental refers to compliance with conditions for environmental licensing. Comperj (R$ 814 million expense for a R$ 4.6 billion exposure)
- As a result of the BR Distribuidora’s follow-on, we are presenting in this report BR Distribuidora’s operations as discontinued operations. For the 3Q19, we estimate a pre-tax capital gain of R$ 14.2 billion (including the R$ 7.4 billion re-measurement gain).
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