Petroleo Brasileiro SA, Brazil's state-controlled oil company, said profit dropped 22% on currency fluctuations and rising equipment and pension costs.
Consolidated net income fell to 5.53 billion reais ($3.17 billion), or 1.26 reais per share, from 7.08 billion reais, or 1.61 reais, in the year-earlier period, the Rio de Janeiro- based company said today in a note to the Brazil's stock-market regulator. Net sales climbed to 44.5 billion reais.
Petrobras plans to spend $112.4 billion in the 2008-2012 period, part of a program to almost double production to 4.15 billion barrels in 2015. Much of the increase comes as rising oil prices and expanded world exploration drives up the cost of platforms, steel tubes and other oil equipment.
``Even as the future looks very promising for Petrobras, the company faced and faces a series of challenges in terms of controlling cost growth,'' said Felipe Cunha, head of oil and energy research at Brascan Corretora in Rio de Janeiro, in a telephone interview before the earnings report was released.
Cunha rates the stock outperform and expects it to reach 83 reais over the next 12 months. He expected profit to be little changed, falling 0.7 percent to 7.07 billion reais.
The U.S. dollar bought 1.92 reais, on average, in the third quarter compared with 2.17 reais a year earlier. A weaker dollar reduces the Brazilian-currency value of dollar-based earnings.
The company's net financial losses were 1.08 billion reais in the period as a result of the depreciation of the Brazilian currency against the U.S. dollar.
Petrobras also had 287 million reais in costs in the quarter for a new labor contract. The agreement reached in July with the Brazilian petroleum union calls for raises ranging from 1.9 percent to 34 percent.
The company had 700 million reais in pension costs in the quarter.
``Our costs rose, but the main reason for the decline was the weaker dollar and payments to the pension fund,'' Chief Financial Officer Almir Barbassa said in an interview at Petrobras headquarters. ``When the dollar falls the value of our overseas and dollar assets falls so we have to take it as a loss.''
Petrobras, as the company is known, has a year-end estimate for the Brazilian real of about 1.75 reais to the dollar, he said, adding that it is likely that the real may gain more against the dollar.
Average daily output of oil and natural gas equivalent in Brazil and abroad rose 0.2 percent in the quarter to 2.31 million barrels a day. Higher output led Petrobras to sell more gasoline abroad where it earns more profit per barrel.
Petrobras and other oil companies are expanding exploration as the price of crude approaches $100 a barrel. Crude oil futures in New York averaged $75.15 a barrel in the third quarter, up 6.4 percent from a year ago, and touched a record $98.62 a barrel on Nov. 7.
Petrobras yesterday said its Tupi field may contain as much as 8 billion barrels of oil and natural gas, an amount that may boost the country's reserves by almost two-thirds.
The Tupi find, which Petrobras estimates contains at least 5 billion barrels of oil and gas, is just a ``tiny'' part of a new oil province that the company believes is beneath existing fields, Petrobras Chief Executive Officer Jose Gabrielli said yesterday at a press conference.
Tupi's total estimate would almost match that of Norway's 8.5 billion barrels of proved oil reserves, according to an estimate by BP Plc. The oil at Tupi, located in the offshore Santos Basin, is a light grade, more valuable and cheaper to refine than the heavy crude that dominates Brazilian output.
The potential new reserves may boost Brazil's oil reserves to 11th biggest in the world from 17th, just behind the U.S. and ahead of Canada, he said.
The field is three quarters the size of Kazakhstan's Kashagan field, which holds 12 billion barrels of recoverable crude and was the biggest find in the last 30 years. BG Group Plc and Galp Energia SGPS SA are partners in the field. ( Bloomberg )