By RODRIGO ORIHUELA and PETER MILLARD
Petroleo Brasileiro SA, the worlds most indebted oil
company, slashed its five-year investment plan by $16 billion
as it cut spending in its unprofitable refining division.
Petrobras, as the state oil company is known, will spend
$220.6 billion in a plan through 2018, 6.8% less than had
been earmarked in its prior plan, the Rio de Janeiro-based
company said in a regulatory filing after markets closed.
Investments in the refining division will drop to $38.7
billion from $64.8 billion in the previous plan.
Petrobras increased the price of gasoline by 4% and the price
of diesel by 8% on Nov. 29, the first boost in nine months,
as part of its attempt to cut the gap between global and
domestic prices. The refining
division has lost about
$37 billion since 2011, when the government, which owns the
majority of the companys voting shares, started making
Petrobras subsidize imported fuel.
They are re-directing capital spending to the higher-
margin, higher-value upstream side of the business over the
side of the house,
Gianna Bern, president of Chicago-based risk-management
adviser Brookshire Advisory & Research, said in a
telephone interview. Overall thats where
youd really rather see them focus their efforts.
Petrobrass fourth-quarter profit dropped 19%, less than
analysts expected, as net income slid to 6.28 billion reais
($2.68 billion), or 48 centavos/share, from 7.8 billion
reais, or 59 centavos, a year earlier, the company said.
Per-share profit excluding some items beat the 41-centavo
average of 12 analysts estimates compiled by
Gasoline and diesel imports are curbing profit as Petrobras
pays more than what it receives from domestic distributors
for the fuel at subsidized prices. The government has
prevented the company from increasing prices enough to erase
the losses as it seeks to keep inflation in check.
Overall, we view the plan as positive, with key
factors moving in the right direction, Bank of America
Corp. analysts Frank McGann and Vicente Falanga Neto said in
a report to clients. However, we doubt it will have a
big effect on near- term stock performance, given broader
concern on pricing.
The reduction in refining division spending comes as the
company prepares to bring two new refineries, Comperj and
Abreu e Lima, online by the second half of 2015. No details
were provided for the decrease in refining investments.
Oil and liquefied natural gas production in Brazil is
forecast to grow by 7.5% in 2014 from the 1.93 million bpd
pumped in 2013, Petrobras said.
The company reiterated its 2020 domestic output target of 4.2
million bpd of oil and liquefied natural gas. The company
will spend $153.9 billion in exploration and production in
the five-year period, up from $147.5 billion in the prior
Petrobras said the exploration and production unit had higher
quarterly profit than a year ago because of increased
volumes, fewer dry wells and the sale of a stake in an
offshore oil field.
In the refining
losses decreased to 5.5 billion reais from a year earlier,
following the fuel price increase. The fourth-quarter gap
between international and domestic prices was 11% for
gasoline and 19% for diesel, according to Deutsche Bank
Petrobras said it ran its crude refineries at an average 97%
of capacity last year as it boosted output in an attempt to
lower reliance on imported fuel. The company previously said
rate was 92%.
The companys $114.3 billion in debt makes it the most
indebted oil company in the world, according to data compiled
Higher debt is coupled with the companys expectation
that it wont generate positive cash flow until 2016,
while posting the highest negative cash flow among global oil
In October, Petrobras presented a proposal to the board to
create a methodology for adjusting prices automatically. On
Nov. 29, the board authorized the first fuel-price increase
in nine months without divulging a formula for future
adjustments. The stock plunged 9.2% the next trading day.
In the face of concerns over weak economic growth this year
in Brazil, the government probably wont change its
stance on fuel prices any time soon as it prepares for
presidential elections in October, Joao Castro Neves, an
analyst at Eurasia Group, said by telephone from New York.
Brazils government expects the economy to grow 2.5% in
2014 and inflation to reach 5.9%.
After the stock slumped 18% in the past year, 14 of 19
analysts covering the company recommend buying. The other
five have a hold rating.
Making our shares valuable and the fair return to our
shareholders is the result of the natural fulfillment of our
obligations, CEO Maria das Gracas Foster said in a
letter published with the earning report.