(Updates with comments from CEO, fund manager, ADR price)
By Marta Nogueira and Rodrigo Viga Gaier
RIO DE JANEIRO May 11 An aggressive turnaround
helped Petroleo Brasileiro SA post a record operating profit in
the first quarter and move ahead of schedule in reducing a debt
burden that is the largest of any major oil firm.
Petrobras, as the state-controlled company is known,
reported net income of 4.449 billion reais ($1.42 billion), well
above a consensus estimate of 3.773 billion reais, while
improving cash flow and debt metrics. Petrobras lost a net 1.246
billion reais in the first quarter of 2016.
Moves to increase output in some offshore fields, sell
non-essential assets and keep expenses in check yielded the
firm's best operating profit ever. Adjusted earnings before
interest, taxes, depreciation and amortization (EBITDA) rose 19
percent to 25.254 billion reais, beating the consensus forecast
by 1.38 billion reais.
Chief Executive Pedro Parente said the strong result was
driven by recurring factors such as cost controls, putting
Petrobras ahead of a timetable to reduce net debt to 2.5 times
annual EBITDA by the end of next year, from a ratio of 3.2 at
the end of March.
"If we get to 2.5 (times EBITDA) before the end of 2018,
that doesn't mean we're going to stop (reducing debt)," Parente
told journalists. "We want to keep cutting so we can lower our
A sharp drop in asset impairments also contributed to
earnings as Petrobras moved on from a bribery scheme in which
the book values of several projects were artificially inflated.
Free cash flow, the money left for holders of bonds and
shares after operating and financial expenses, rose 12 percent
from the fourth quarter to 13.368 billion reais.
"It was a strong beat across the board that brings about a
tipping point for the case," said Pedro Albuquerque, who runs
the Cosmos Capital hedge fund and has a position in Petrobras.
"Parente still has room to keep cutting costs, so margins look
Petrobras American depositary receipts were up 3.3
percent at $10.02 in after-hours trading.
Parente said the sale of natural gas pipeline NTS, which
generated 6.7 billion reais in the second quarter, also boosted
the odds of paying dividends for the first time since 2014.
To be sure, Parente still faces challenges such as oil
prices near decade lows, a corruption scandal that highlighted
governance flaws, and losses incurred over many years because of
government-mandated fuel subsidies and money-losing investments.
Net revenue slipped 3 percent from a year earlier to 68.365
billion reais, about 1 percent below the consensus estimate.
(Reporting by Marta Nogueira and Rodrigo Viga Gaier; Additional
reporting by Roberto Samora and Guillermo Parra-Bernal in Sao
Paulo; Writing and additional reporting by Brad Haynes; Editing
by Andrew Hay)