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Petrobras (PBR) Beats on Q3 Earnings, Ups Production Guidance

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Zacks Equity Research
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Brazil's state-run energy giant Petroleo Brasileiro S.A., or Petrobras PBR announced third-quarter adjusted profit of 9 cents per ADS, which beat the Zacks Consensus Estimate of 5 cents. The company’s bottom line also marked an improvement from the year-ago quarter’s breakeven earnings. The favorable comparisons primarily stems from higher production and a decline in lifting costs.

However, Petrobras’ adjusted EBITDA fell to $6,214 million from $8,209 million a year ago due to lower average realized commodity prices. Meanwhile, the company’s revenues of $13,148 million came in below the Zacks Consensus Estimate of $13,872 million and slumped from the year-earlier sales of $19,416 million.

Petrobras, one of the largest oil and gas firms in the world, said that this year’s average output is now expected to be 2,840 thousand barrels of oil equivalent per day (MBOE/d), up from the prior projection of 2,700 MBOE/d. In particular, the company sees oil volumes ramping up to 2,280 thousand barrels per day from 2,200 before.
 

Petroleo Brasileiro S.A. Petrobras Price, Consensus and EPS Surprise

Petroleo Brasileiro S.A. Petrobras Price, Consensus and EPS Surprise
Petroleo Brasileiro S.A. Petrobras Price, Consensus and EPS Surprise

Petroleo Brasileiro S.A. Petrobras price-consensus-eps-surprise-chart | Petroleo Brasileiro S.A. Petrobras Quote

Coming back to earnings, let's take a deeper look at the recent performances of Petrobras’ two main segments: Upstream (Exploration & Production) and Downstream (or Refining, Transportation and Marketing).
 
Upstream: This Rio de Janeiro-headquartered company’s average oil and gas production during the third quarter reached 2,952 MBOE/d — 80% liquids — up from 2,878 MBOE/d in the same period of 2019.

Compared with the third quarter of 2019, Brazilian oil and natural gas production — constituting more than 98% of the overall output — increased 3.9% to 2,904 MBOE/d. The improvement was driven by the ramp-up of production in the Búzios field, new start-ups and restoration of activity in platforms whose operations were hampered by the coronavirus outbreak.

In the July to September period, the average sales price of oil in Brazil fell 27.2% from the year-earlier period to $42.30 per barrel. The falling crude prices had a negative effect on upstream segment earnings, which was partly offset by higher production.

Overall, the segment’s revenues declined to $9,358 million in the quarter under review from $12,551 million in the year-ago period. As far as the bottom line is concerned, even a tight leash on pre-salt lifting costs, which fell 23.3% from the third quarter of 2019 to $3.86 per barrel, was unable to provide support. In fact, the upstream unit recorded a net income of $2,707 million, down from third-quarter 2019 earnings of $2,979 million.

Downstream: Revenues from the segment totaled $11,955 million, down 30.2% from the year-ago figure of $17,124 million. Despite lower sales, Petrobras' downstream came up with profit of $403 million, which compared favorably with earnings of $121 million in the third quarter of 2019. The surge was on account of lower refining cost and the absence of unscheduled downtime at its facilities.

 

Costs

During the period, Petrobras’ sales, general and administrative expenses were $1,484 million, 15.6% lower than the year-ago period. Selling expenses also fell from $1,252 million a year ago to $1,175 million. Consequently, total operating expenses were $2,751 million, down 32.4% from the corresponding quarter last year when the company recorded $607 million of impairment losses. This meant that the company reported operating income of $3,529 million in the third quarter of 2020 compared with $3,492 million a year ago.

Financial Position

During the three months ended Sep 30, 2020, Petrobras’ capital investments and expenditures totaled $1,638 million compared with $2,612 million in the prior-year quarter. Importantly, the company generated positive free cash flow for the 22nd consecutive quarter, with the metric rising to $7,468 million from $6,480 million recorded in last year’s corresponding period.

At the end of the third quarter, Petrobras had net debt of $66,218 million, less than $75,419 million a year ago and $71,1222 million as of Jun 30, 2020. The company ended the quarter with cash and cash equivalents of $12,704 million.

Meanwhile, Petrobras’ net debt to trailing 12 months EBITDA ratio improved to 2.33 from 2.40 in the previous year. Moreover, it was slightly better than 2.34 at the end of the second quarter.

Zacks Rank & Key Picks

Petrobras currently a Zacks Rank #3 (Hold).

Some better-ranked players in the energy space are Cabot Oil & Gas COG, Antero Midstream AM and Holly Energy Partners, L.P. HEP, all carrying a Zacks Rank #2 (Buy).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Over the past 30 days, Cabot Oil & Gas has seen the Zacks Consensus Estimate for 2020 improve 6.9%.  

Antero Midstream has an excellent earnings surprise history, having surpassed estimates in each of the last four quarters by 21.47%, on average

Over the past 30 days, Holly Energy Partners has seen the Zacks Consensus Estimate for 2020 improve 1.1%.

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Petroleo Brasileiro S.A. Petrobras (PBR) : Free Stock Analysis Report
 
Cabot Oil Gas Corporation (COG) : Free Stock Analysis Report
 
Antero Midstream Corporation (AM) : Free Stock Analysis Report
 
Holly Energy Partners, L.P. (HEP) : Free Stock Analysis Report
 
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