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.

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