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Petrobras (PBR) Q1 Earnings Miss Estimates on Lower Oil Price

Brazil's state-run energy giant Petroleo Brasileiro S.A., or Petrobras PBR announced first-quarter earnings per ADS of $1.11, beating the Zacks Consensus Estimate of 98 cents. The outperformance can be attributed to improving fuel sales prices.

However, the bottom line deteriorated from the year-ago profit of $1.29 due to lower oil prices and production that resulted in weak upstream results, plus rising pre-salt lifting costs.

Recurring net income, which strips one-time items, came in at $7,252 million compared to $8,373 million a year earlier. Petrobras’ adjusted EBITDA fell to $13,956 million from $14,961 million a year ago.

The company reported revenues of $26,771 million, which decreased 1.5% from the year-earlier sales of $27,189 million and came below the Zacks Consensus Estimate of $26,946 million.

In good news for investors, Petrobras plans to pay RMB 24.7 billion or roughly $4.94 billion in total quarterly payouts.  

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

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Coming back to earnings, let's take a deeper look at the recent performances of PBR’s two main segments: Upstream (Exploration & Production) and Downstream (or Refining, Transportation and Marketing).

Upstream: The Rio de Janeiro-headquartered company’s average oil and gas production during the first quarter reached 2,676 thousand barrels of oil equivalent per day (MBOE/d) — 80% liquids — down from 2,796 MBOE/d in the same period of 2022.

Compared with the year-ago quarter, Brazilian oil and natural gas production — constituting approximately 99% of the total output — decreased 4.2% to 2,640 MBOE/d. The downside was blamed on divestments, and the shutdown of the P-18 and P-20 platforms, to go with natural field decline.

In the January-to-March period, the average sales price of oil (or the average Brent crude price) dropped 19.9% from the year-earlier period to $81.27 per barrel. The decrease in crude prices, together with the dip in production, thereby had a major negative effect on upstream unit sales. Overall, the segment’s revenues fell to $15,730 million in the quarter under review from $19,684 million in the year-ago period.

As far as the bottom line is concerned, an uptick in pre-salt lifting costs (which rose 9.4% from the first quarter of 2022 to $5.61 per barrel) meant that the upstream unit recorded a net income of $6,108 million, down 23.2% from first-quarter 2022 earnings of $7,954 million.

Downstream (or Refining, Transportation and Marketing): Revenues from the segment totaled $24,842 million, a slight uptick from the year-ago figure of $24,685 million on higher fuel sales price. However, Petrobras' downstream unit came up with a profit of $1,199 million, which compared unfavorably with earnings of $1,938 million in the first quarter of 2022. The dip was on account of lower production volume and higher unit refining cost.

Costs

During the period, Petrobras’ sales, general and administrative expenses were $1,578 million, 6.8% higher than the year-ago period. Selling expenses also rose from $1,178 million a year ago to $1,221 million. This led to a $418 million increase in total operating expenses.

The jump in costs and lower revenues meant that PBR reported an operating income of $11,553 million in the first quarter of 2023 compared with $12,268 million a year ago.

Financial Position

During the three months ended Mar 31, 2023, Petrobras’ capital investments and expenditures (excluding signature bonus) totaled $2,482 million compared with $1,768 million in the prior-year quarter.

Importantly, the Zacks Rank #3 (Hold) company generated a positive free cash flow for the 32nd consecutive quarter, with the metric coming in at $7,924 million compared to $7,932 million recorded in last year’s corresponding period.

At the end of the first three months of 2023, Petrobras had a net debt of $37,588 million, down from $40,072 million a year ago and $41,516 million as of Dec 31, 2022. The company ended the quarter with cash and cash equivalents of $10,290 million.

Meanwhile, Petrobras’ net debt to trailing 12 months EBITDA ratio improved to 0.58 from 0.81 in the previous year. It also bettered 0.63 at the end of the fourth quarter of 2022.

Some Important Q1 Energy Releases

While we have discussed PBR’s first-quarter results in detail, let’s take a look at some key energy releases of the January-MarchCVX period.

SLB SLB, the largest oilfield contractor, announced first-quarter 2023 earnings of 63 cents per share (excluding charges and credits), which beat the Zacks Consensus Estimate of 61 cents. SLB recorded total revenues of $7.7 billion, outpacing the Zacks Consensus Estimate by 3.2%.

SLB’s strong quarterly earnings resulted from higher stimulation services across all onshore and offshore areas. The company foresees strong activities across the globe this year. In the Northern Hemisphere, SLB expects a seasonal recovery in the second quarter with capital expansion developments in the Middle East.

U.S. energy powerhouse Chevron (CVX) reported first-quarter earnings per share of $3.55, ahead of the Zacks Consensus Estimate as well as the year-earlier quarter’s adjusted profit of $3.36 per share. The outperformance could be attributed to a higher-than-expected bottom line for the company’s downstream segment. The unit’s profit of $1.8 billion came 15.5% above the consensus mark.

The company recorded $7.2 billion in cash flow from operations, compared to $8.1 billion a year ago. The decreasing cash flow could be attributed to weaker crude price realizations in the upstream business. Importantly, Chevron’s free cash flow for the quarter was $4.2 billion. Further, CVX paid $2.9 billion in dividends and bought back $3.8 billion worth of its shares.  

Refining giant Marathon Petroleum MPC reported adjusted earnings per share of $6.09, which comfortably beat the Zacks Consensus Estimate of $5.74 and compared with a profit of merely $1.49 per share in the year-ago period. MPC’s bottom line was favorably impacted by the stronger-than-expected performance of its key Refining & Marketing segment. Operating income of the segment totaled $3 billion, surpassing the Zacks Consensus Estimate by 19.9%.

In the reported quarter, Marathon Petroleum spent $690 million on capital programs (61% on Refining & Marketing and 35% on the Midstream segment) compared to $573 million in the year-ago period. As of Mar 31, the company had cash and cash equivalents of $8 billion and total debt, including that of MPLX, of $27.3 billion, with a debt-to-capitalization of 45.5%.

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