(Adds details on debt, executive comments, background)
By Guillermo Parra-Bernal and Marta Nogueira
SAO PAULO/RIO DE JANEIRO, March 21 Petróleo
Brasileiro SA cut debt by 20 percent and had positive free cash
flow for the seventh straight quarter during the fourth quarter,
in a further sign of recovery at Brazil's state-controlled oil
company in spite of a quarterly profit miss.
Net income at Petrobras came in at 2.510 billion
reais ($812 million) last quarter, reversing a loss of 16.458
billion reais in the July-to-September period. Drastic
cost-cutting and higher well productivity helped offset weaker
revenue trends, the main culprit behind the profit miss.
The average consensus estimates of analysts compiled by
Thomson Reuters forecast a profit of 3.703 billion reais in the
fourth quarter. Net debt fell a bigger-than-expected 20 percent
to 314.120 billion reais, helped by a stronger currency and
sliding borrowing costs in Latin America's largest economy.
The results underscore Chief Executive Officer Pedro
Parente's success in cleaning up a balance sheet with
unrealistically priced investments and scaling back the largest
debt burden among the world's major oil companies.
Free cash flow, the money left for holders of bonds and
shares after all operating and financial expenses are paid,
reached 11.953 billion reais, down 27 percent from the third
quarter but in line with most estimates. Free cash flow
generation is key for Petrobras's goal to reduce debt.
"We had some good results in the quarter, but the job is far
from done, the company's debt is still too high," Parente told
reporters at an event to discuss results. "Happily, there are
very encouraging operational numbers here."
Chief Financial Officer Ivan Monteiro said at the event that
both credit costs and access to financing have improved since
Parente took the helm of Petrobras last May. Both elements are
key to speed up a reduction in the company's debt metrics in
coming months, he added.
The cost of insuring against a Petrobras bond default for
five years, a contract commonly known as credit
default swap, has dropped about two-thirds in the past 11
months, to 334 basis points.
Management will further discuss results on Wednesday in a
conference call with investors.
Parente, however, faces several market and operational
challenges that include oil price nearing their lowest in a
decade, a corruption scandal highlighting governance flaws, and
losses incurred over many years because of government-mandated
fuel subsidies and money-losing investments.
This month's ruling by state audit court TCU allowing
Petrobras to resume asset sales should propel cash generation
and translate into lower capital debt and fundraising needs,
both executives said. Petrobras has a goal of about $19 billion
in divestitures and new partnerships by December 2018.
Still, Petrobras will forgo dividend payouts and worker
bonuses linked to profit related to last year, until the
company's debt and cash positions improve further, Parente said.
The company lost a net 14.824 billion reais for the full year.
"We'd love to resume payouts as soon possible, though," he
said at the event.
A slump in global commodity prices led common American
depositary receipts of Petrobras down 3.9 percent to
$8.81 on Tuesday in New York, extending their decline this year
to 12.7 percent.
Net revenue was largely flat from the third quarter,
totaling 70.489 billion reais, below consensus estimates of
74.762 billion reais.
Even as Petrobras had to raise wages above inflation for a
collective bargaining agreement, costs fell more than expected
in the wake of smaller charges related to a worker retirement
program and a 77 percent decline in asset impairments.
Capital spending surprisingly rose 15 percent last quarter,
bucking the 9 percent decline forecast by analysts. Petrobras
revised total capital spending planned for the 2017-2021 period
to $74.5 billion from $74.1 billion previously.
Steps to grow output in some offshore fields, sell
non-essential assets and keep expenses in check helped drive
operational earnings higher, executives said at the event.
Adjusted earnings before interest, taxes, depreciation and
amortization, a gauge of operational profit known as adjusted
EBITDA, reached 24.788 billion reais, beating an estimate of
19.707 billion reais.
($1 = 3.0891 reais)
(Additional reporting by Gustavo Bonato in São Paulo; Editing
by James Dalgleish, Bernard Orr)