MercoPress. South Atlantic News Agency

Petrobras admits cash strapped to develop ambitious expansion

Brazilian government managed oil company Petrobras announced on Tuesday that net income rose 96% in the third quarter thanks to a stronger US dollar and increased production. However this did not prevent shares from sliding 14% on Wednesday trading because of falling oil prices and the expanding global financial crisis.

Net income soared to a record 10.8 billion Real (5 billion USD) from 5.5 billion Real (2.5 billion USD) in the same quarter last year. Revenue rose 52% to 67.4 billion Real (31.4 billion USD) from 44.4 billion Real (26.6 billion USD) in the third quarter of 2007. This is the largest quarterly profit in the company's history. The results were boosted in part by the strengthening of the dollar, which helped increase the company's export earnings. The dollar rose over 20% against Brazil's currency from July to September. Petrobras also benefited from a 5% increase in domestic production and high oil prices during the reporting period. Furthermore, the government allowed Petrobras to raise domestic gasoline prices after several years without price hikes. Petrobras' previous record profit was 8.7 billion Real (4 billion USD) in the second quarter of 2008. Analysts had expected the company to surpass that in the third quarter, but predict a fourth-quarter decline due to dramatically lower oil prices and the effects of the world financial crisis. But on Wednesday the preferred shares of Petrobras sank 14%, its steepest decline since 1998. Petrobras's losses dragged down Brazil's Bovespa index, which dropped 7.8%. Falling oil prices and the global credit crisis are putting pressure on Petrobras to generate more cash. Crude plunged 5.3% to 56.16 USD a barrel on Wednesday forecasts of higher US oil inventories. Prices have tumbled 62% since reaching a record 147.27 USD last July 11. Plunging crude prices and tighter credit make it imperative that Petrobras, which plans to spend 112 billion USD to develop oil reserves in the 2008-2012 period, focus investments on projects that produce as much cash as possible, the company's Chief Financial Officer Almir Barbassa told reporters. Heavy investments reduced Petrobras cash position 18% to 10.8 billion Real on September 30 from 13.1 billion Real at the end of 2007, according to the company's website. Total cash, a measure of the company's ability to finance its investments from operations, has declined 61% since the beginning of 2007. As part of its efforts to generate more cash for investment Petrobras will move ahead with efforts to begin commercial output in its Tupi field in 2010, Barbassa said. With an estimated 5 billion to 8 billion barrels of oil, Tupi, off the coast of Rio de Janeiro, is the largest oil discovery in the Americas since 1976.