More Earnings Woes for Petrobras

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Petroleo Brasileiro S.A. (NYSE: PBR), better known as Petrobras, reported fourth-quarter and full-year 2013 results after markets closed on Tuesday. The Brazilian behemoth posted full-year sales of 349.9 billion reais (about $150 billion at one real equal to $0.43). Net income for the year rose 11% to $10.13 billion, but fourth-quarter net profit fell 19% year-over-year to $2.7 billion.

The company did get a boost in November when the government finally allowed Petrobras to increase its price for diesel fuel by 20% and its price for gasoline by 11%. That still did not meet the company’s refining costs, and the refining division posted a loss of $2.35 billion. Petrobras is also spending heavily to upgrade and enlarge its refining capacity. It spent$13.22 billion in 2013 to move that process along, up 7% over capital spending on refining in 2012.

But the big story with Petrobras was and is its capital spending. The company has committed to spending vast amounts to develop and produce its massive offshore fields. Its 2013 exploration and production spending totaled $25.8 billion.

The level of spending does not quite match up with production however. Petrobras produced 2.12 million barrels of oil equivalent a day last year, up 6% over 2012. Brazilian crude sold at a 2013 average price of $98.19 a barrel, about $10 a barrel below the Brent crude benchmark.

The real has lost about 18% of its value against the U.S. dollar, and that also has chipped away at the company’s profits. Some bankers think that the real could lose another 25%, which may be good for many Brazilians, but not so good for Petrobras.

Through 2018, Petrobras says it will spend $220.6 billion in capital investments, of which about $154 billion will be spent on exploration and production, and $38.7 billion will be spent on its refining assets. Petrobras said it will finance all this with $182.2 billion in operating cash flow and divestments, $9.1 billion in surplus cash, $9.9 billion in restructuring and $60.5 billion in gross debt. Petrobras already carries about $115 billion in total debt.

The company is targeting total production in 2018 of 3.9 million barrels of oil equivalent a day, rising to 5.2 million barrels a day by 2020. That is an increase of 1.7 million barrels a day from 2013 levels.

The company’s ADRs traded down about 1% in Wednesday’s premarket, at $11.24 in a 52-week range of $10.63 to $19.65. One ADR is equal to two ordinary shares. The consensus price target on the stock is a whopping $19.44 before the report.