[FUEL PRICES] Petrobras Profit Rises on Higher Output

PETROBRAS, Brazil's state-controlled oil company, said second-quarter profit jumped 29 percent to a record on increased oil production and higher prices for crude and fuel. Consolidated net income rose to 8.78 billion reais ($5.40 billion), or 1 real a share, from 6.80 billion reais, or 78 centavos, a year earlier, Petrobras, as the company is known, said today in a statement to Brazil's securities regulator. Net sales climbed 31 percent to 54.6 billion reais.

Rio de Janeiro-based Petrobras raised gasoline and diesel prices in May for the first time since September 2005. Oil prices were 50 percent higher than the same period a year earlier. Higher revenue will bolster a $112 billion five-year expansion plan proposed after the company's Tupi discovery in November, the largest find in the Americas since 1976.

``The fuel price increase was a long-time coming and is helping a lot,'' said Lucas Brendler, analyst with Geracao Futuro, a Porto Alegre, Brazil-based asset management company that invests about 16 percent of its 8 billion reais of assets in Petrobras. ``The company is also benefiting from higher oil production.''

Brendler expected profit of 8.06 billion reais and net sales of 51.8 billion reais. Net sales is total sales minus sales taxes. He made his comments in a telephone interview before the report was released.

Exceeds Estimates

The average estimate of four analysts surveyed by Bloomberg News called for net income of 7.86 billion reais.

Output of oil and natural-gas equivalent rose 3.8 percent to an average 2.39 million barrels a day in the quarter from 2.30 million barrels a day a year earlier, Petrobras said on July 15.

``Output growth is still weak,'' said Luiz Otavio Broad, oil and gas analyst with Agroa CTVM in Rio de Janeiro. ``The tendency is for output to improve more this year and with higher fuel prices, the third quarter should be better than the second.''

He rates the stock a ``buy,'' and doesn't own any. Broad made his comments in an interview before the report.

Higher production from platforms installed in 2007 helped make up for declining output from other fields, Chief Financial Officer Almir Barbassa told reporters today in Rio de Janeiro.

Natural-gas output rose 38 percent from a year ago, helping turn an unprofitable division into a profitable one, he said.

Future Output

Three new platforms are scheduled to start operations by the end of the year, Barbassa said. Known as P-51, P-53 and Cidade de Niteroi, they will add 460,000 barrels of day of capacity when the platforms reach full capacity in 2009.

The company's Tupi discovery may contain as much as 8 billion barrels of recoverable oil equivalent, Petrobras said in November. Tupi may hold enough oil to supply every refinery on the U.S. East Coast for 15 years.

Profit may have been higher if not for an increase in the value of Brazil's real, Felipe Cunha, an oil analyst at Brascan Corretora, wrote in a note to clients on July 28.

Brazil's real was worth an average 1.66 reais to the dollar in the second quarter, 16 percent stronger than the average 1.98 reais to the dollar a year earlier. The real lifted financial costs by 59 percent to 1.80 billion in the period from 1.14 billion a year earlier, he said.

Heavy vs Light Oil

Net income was also limited as the difference between the price of heavy and light grades of crude oil rose. Petrobras's refineries can't handle some of the heavy grades of oil that dominate its production. The company must export cheaper heavy oil and use the proceeds to import higher-priced light-crude.

The average difference, or spread between Maya, a benchmark heavy oil, and Brent, a benchmark light crude, widened 47 percent to an average $19.90 dollars a barrel in the second compared with $13.50 in the year-earlier period.

Petrobras's light-oil imports increased 6.9 percent to an average of 608,000 barrels a day in the quarter from a year earlier while exports rose 13 percent to 670,000 barrels a day, according to today's statement.

The rise in imports was caused by increased economic growth in Brazil, prompting higher demand for diesel fuel, which required Petrobras to import more light grades of oil, Barbassa said. Diesel is the most used vehicle fuel in Brazil.

The report was released after the close of regular trading on Brazilian stock markets. Petrobras preferred shares, the company's most-traded class of stock fell 85 centavos, or 2.5 percent, to 32.70 reais in Sao Paulo.

The stock has lost about 25 percent of its value this year while the benchmark Bovespa index of the 66 most-traded stocks on the Sao Paulo stock exchange fell 14 percent.

Source: BLOOMBERG|By Jeb Blount

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