Monday, November 15, 2010

Petrobras Stuck In The Middle

At first glance, these should be great days for Brazil's energy giant Petrobras (NYSE: PBR). Not only are oil prices heading higher, but Petrobras has privileged access to some of the largest oil fields known today. Unfortunately for PBR investors, there is a great deal of skepticism regarding management's capabilities, and this quarter will not help ease those concerns. 

A Quarter That Does Not Hold Up
At first glance, it would seem that Petrobras had a solid third quarter. After all, net income was up 17% from last year. While revenue was up 14% from last year and up 2% sequentially, EBITDA was up 1% and down 1% for the same respective time periods. A lot of that seemingly strong net income number was fueled by a currency benefit, making it a low-quality beat.

Moreover, some worrying details were in the numbers. Production was up just 1% from last year (and down 1% sequentially), and although this was not a surprise (management discussed this earlier), it marks another entry in this management's history of over-promising and under-delivering on production growth guidance. Even more concerning, though, was the 8% increase in domestic lifting costs (up 1% from the Q2). In other words, the company is not pumping as much as it should, and it's costing more to do it.


Please follow the link for the full piece:
http://stocks.investopedia.com/stock-analysis/2010/Petrobras-Stuck-In-The-Middle-PBR-COP-SU-RDS.A-RDS.B-CEO-PTR1115.aspx

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