Petrobrás' profit falls 42%. Company on Divã.

Investidor AvançadoWagner Geremia
Lucro da Petrobrás Cai 42%. Empresa No Divã.

Image: Fernando Frasão / Agência Brasil

Petrobras recorded a net profit of R$26.6 billion in the 3rd quarter of 2023, marking a 42% drop compared to the same period of the previous year.


Petrobrás highlighted that the decrease in its profit was due to the drop in oil prices and unfavorable exchange rate conditions . According to my analysis, the average cost of a barrel of oil in the third quarter of 2022 was R$90, while this year the average cost was R$80 for the same period, representing a reduction of 13%. Simultaneously, the exchange rate went from an average of R$5.2 in the third quarter of 2022 to R$4.93 in the third quarter of this year, resulting in a drop of 6%.

Source: Trading Economics.

Assuming that Petrobras ' sales remained at the same level as the number of barrels of oil sold . When adding both reductions, both in the price of the commodity and in the exchange rate , we realize that there is an estimated decrease of 20% in revenue. However, production expanded by 9%, suggesting the possibility that this 20% drop could be mitigated in the same proportion.

Source: Petrobras.

Therefore, the exchange rate and the average price of a barrel of oil, discounting the growth in production and sales, could explain the drop of just 10% in the result. Which leads me to believe there may be something that hasn't been mentioned.
We can see that sales revenue went from R$170 billion to R$125 billion this quarter, 6% below my initial estimate, while the gross margin remains stable at around 50%. However, operating expenses increased from R$12 billion in the third quarter of 2022 to R$17.5 billion this quarter, subtracting another R$6 billion from the net profit line. Therefore, there was, in fact, a drop in sales, but what was not mentioned is that there was a 40% increase in the company's expenses . When reading the company's report, I came across the intriguing sentence:
"The main exploration expenses in 3Q23 resulted from losses related to the exploration blocks C-M210, CM-277, CM-344, CM-346, CM-411 and CM-413, located in the pre-salt Campos Basin. This occurred due to the economic unfeasibility of production development projects..."

Losses due to economic unfeasibility seem to be the answer to our investigation. The question is:

How could we avoid getting involved in a project that is not economically viable? Tell Wagner Geremia

In the case of Petrobras, it might be important to remember the theories behind " Winner`s Curse ".

Check out the highlights of Petrobras' third quarter report.

  1. Dividends and JCP:

    • Petrobras announced the payment of dividends and JCP in the amount of R$17.5 billion, bringing forward the remuneration to shareholders for the 2023 financial year. The amount will be distributed in two installments of R$1.34 per common and preferred share.

  2. Impact of Oil Prices and Currency Exchange:

    • The devaluation of the barrel of oil compared to the previous year was cited as an explanation for the 35% drop in accumulated profit in 2023. Petrobras emphasized that this variable affected not only the company, but the entire oil, gas and derivatives industry . Furthermore, the devaluation of the real against the dollar negatively impacted the net result.

  3. Financial and Operational Performance:

    • Petrobras' operating cash flow was highlighted as higher than the sector average, even in the face of adversities in oil prices and exchange rates.
    • The company's total revenues fell 26.6% in the 3rd quarter of 2023 compared to the same period of the previous year, reaching R$124.8 billion.
    • Operating expenses increased by 41%, reaching R$17.5 billion, driven by exploratory expenses due to the economic unfeasibility of projects under development.
    • Adjusted Ebitda in the quarter was R$66.2 billion, representing a drop of 27.6%.
    • Petrobras emphasized operational records in the third quarter, especially in gas exploration and production, refining and processing, maintaining a successful commercial strategy for fuels.
Tags: Investidor avançado, Petroleo, Valuation