This summary is based on the second quarter fiscal 2007 earnings call conducted by Petrobras (PBR) on August 15, 2007.
President and CEO: José Sergio Gabrielli de Azevedo
CFO and IR Director: Almir Guilherme Barbassa
Business Strategy and Performance: Celso Fernando Lucchesi
Key Investors Issues
- Net income was 6.8 billion Brazilian reals compared with 6.96 billion reals in the same quarter of 2006.
- Net operating revenue reached 41.8 billion reals, 10% higher than the 38 billion reals a year earlier.
- Refining costs soared up 20% to $2.69 per barrel at Brazilian refineries from a year earlier.
Second Quarter Highlights
The domestic oil production was much stable between the first and second quarter of this year.
- The company has some new platforms recently installed like P-34 and FPSO Capixaba and FPSO Rio de Janeiro that has a production increase, but at the same time the company has some maintenance in a few platforms that kept the average production of the quarter, the second quarter smaller than the first one.
- In June, the company had a higher production when compared with May.
- The oil prices for E&P were positive and this is going to be one of the reasons to explain the good results in the quarter.
The refining in Brazil performed well.
The company kept the utilization of the capacity it has in Brazil, it kept about the same level the company has been using the domestic oil in the volume process in Brazil. The sales volume is important. The company has increased it when compared with the first quarter and it had better quarter than last year as well. This was mainly due to the high season demand. The company had a big season crop in Brazil and lots of diesel was used, and the economy growth in Brazil is one of responsible because more fuels were demanded in the period.
International price and other average of realization price in Brazil grew, mainly caused by two factors. The international oil price was higher, so the company has some of the oil products sold in the Brazilian market. They are attached to the international oil price. So the average realization price in Brazil grew because of that. And the second reason was the foreign exchange. The company had more dollars for the same amount of real.
The company had higher net revenue as well as cost of goods sold increased.
But the company had lower operational costs, which lead to a higher EBITDA. The EBITDA growth was strong and all this led to a higher net income by about 65% increase. This was caused by higher price, higher volumes sold and lower operational costs and in the first quarter the company had exceptional costs mainly due to the pension plan. The company had also the benefit of interest on capital declared. So it had an increase on net income because of that.
Operational expense was lower because of mainly two factors here.
The exploratory costs that happened in the first quarter did not happen in the same level as in the second quarter. And the pension plan ex the costs the company had in the first quarter did not happen again in the second. So this has helped to reduce the operational costs.
The E&P operating profit had a sizeable increase mainly due to the price as the company saw at the beginning.
The price that E&P has received during the second quarter was higher than the first one. There were a small effect on cost of goods sold but they presented a sizeable increase on the revenue even having a lower production, they downstream by taking into account the prices of international oil. The international oil price caused to increase the domestic oil price and then the company has an increase on revenue because of that and as they sold more volume of oil product this has helped to increase the total profit as well. The cost of goods sold by volume and importing more expensive volume to be processed in Brazil caused more to the downstream but they succeed to have a larger operating profit in the second half as well.
The balance between export and import was positive when you take the volume but was not presented best when taking into dollars and this is due to the fact that the product exported has lower value per barrel than the product e imported.
The net income was better because of price, because of volume sold as the company sold more it had higher cost of the goods sold but the operational expense was reduced and then increased net income reaching 6.8 billion reals in the quarter which is about the same level of last year second quarter.
The leverage rate of Petrobras is kept on a low level and was reduced by 2 percentage points compared with first quarter, due to the fact that the company has current appreciation in Brazil and deferring that in this case was reduced when measured in local currency.
But the company has free cash flow as well that has helped to reduce the leverage of the company by increasing the availability. In this first half of the year the company used more than 12 billion reals to pay dividends and to pay debt. Part of the debt paid was not matured yet and the company anticipates payment. This has caused a reduction in cash availability when compared with the beginning of the year by about 10 billion reals but the company extended more than that and pay dividends and the financial debt.
