State-controlled oil company Petroleo Brasileiro (Petrobras) has registered a 17 per cent drop in its first-quarter profit as oil-output fell, imports soared and fuel subsidies ate up cash needed for investment.
 
While the results beat analyst expectations, the Brazilian company failed again to fulfill a promise to rein in operating costs, which jumped in almost every major category compared with the first quarter of 2012. Profit margins also slipped.

Net income in the three months ending March 31 fell to 7.69 billion reais ($3.85 billion) from 9.21 billion reais in the first quarter of 2012. The average profit estimate of five analysts surveyed by Reuters was 6.7 billion reais.

Performance, though, was stronger than in the previous quarter, one of the weakest in the company's recent history.

Operational profit, which excludes non-cash financial results, rose 72 percent from the fourth quarter of 2012. Still, financial results wiped out those gains, leaving bottom-line profit only 1 percent higher from the previous quarter.

Production at Petrobras, as the Rio de Janeiro-based company is known, fell for nine consecutive months through February, compared with each of those same months a year earlier.

"As we expected, there was a decline in oil production in the first quarter," Chief Executive Maria das Graças Foster said in a statement on Friday. "As we said in our 2013-2017 investment plan, oil and gas output in Brazil in 2013 should be stable compared to 2012."

Production, she added, would be lowest in the first half of the year.

The output decline, the result of a platform-maintenance program in the Campos Basin, forced an increase in oil imports, while reducing exports.

As a result, Petrobras' net import of oil and refined products, or the difference between exports and imports of crude oil and fuels, rose more than nine-fold in the quarter to an average 454,000 barrels a day, the statement said.

It has also undermined returns at the company's flagship exploration and production, or E&P, division. Profit there slipped by a fifth to 15.1 billion reais, compared with 18.8 billion reais in the first quarter of last year.

E&P profit also fell 14 per cent from the fourth quarter, making it the only major Petrobras unit to see its performance decline quarter-on-quarter.

The biggest obstacle to higher profitability has been Brazil's government, Petrobras' controlling shareholder.

Seeking to limit inflation, it prevented domestic fuel prices from rising at the same pace as international oil prices. With the company buying more fuel abroad, it was then forced to sell it at home at a loss.

Over the last year, the loss-making sales have squeezed profitability and forced debt to rise beyond levels stipulated by Petrobras' own rules. Petrobras posted its first loss in 13 years in the second quarter of 2012.

Eager investors in recent years bought Petrobras shares expecting the company to move fast to develop giant offshore reserves discovered near Rio starting in 2007. But many of those investors have fled because of the company's problems, which included repeated cost overruns and lengthy development delays.

The company's market value, which ranked in the world's top 10 less than five years ago, plunged by 83.5 billion reais ($41.8 billion) in the 12 months ending March 31. It lost 10.5 billion of that in the first quarter alone.

Despite the company's rising costs and debt, the government is still pushing Petrobras to complete a $237 billion five-year expansion plan, the world's largest corporate spending program.

That has been difficult because of the government's limits on fuel prices. The handful of modest increases the government has allowed over the past year have been about the only source of improved performance.

Net sales, or total sales minus sales taxes, rose 9.68 percent to 72.5 billion reais from 66.1 billion reais a year earlier. The figure was in line with the average analyst estimate of 73.4 billion reais.

Earnings before interest, taxes, amortization and depreciation, or Ebitda, a measure of a company's ability to generate cash from operations, fell 1.76 per cent to 16.2 billion reais, compared with 16.5 billion reais a year earlier. That beat the average analyst estimate of 14.5 billion reais.

Thanks to the fuel price increases, losses narrowed at the refining division, which in 2012 surpassed the entire company's profit of 21.2 billion reais.

Losses at the refining division in the quarter decreased from a year earlier by 7.9 percent to 6.53 billion reais. They fell 25 per cent from the fourth quarter.

While the fuel hikes have reduced the difference between world and domestic prices, Petrobras still sells imports at well below the price it pays for the fuel. It also sells for less than the cost of refining its own Brazilian crude.

The difference between world and domestic prices fell in the quarter to 20.1 per cent from 28 per cent in the fourth quarter for diesel, according to Sao Paulo's Planner Corretora. The gasoline difference fell to 18.9 per cent from 23.5 per cent.-Reuters