A strong fourth quarter result enabled state-run Brazilian giant Petrobras to remain in the black in 2020, however its full-year profits still tumbled 82.3% compared to 2019.

Petrobras posted a full-year profit of 7.1 billion reais (US$1.3 billion) for the year, a steep decline from the 40.1 billion reais profit booked in 2019.

Petrobras blamed the fall in profits on a 35% drop in Brent prices in 2020, combined with higher impairment charges, lower gains with divestments and a 31% depreciation of the Real against the US dollar.

Helping prevent Petrobras from falling into the red for the year was a fourth quarter profit of nearly 59.9 billion reais, versus less than 8.2 billion reais a year earlier, due mostly to impairment reversals of 31 billion reais and 20 billion reais in foreign exchange gains.

The impairment reversals were a result of the company’s new Brent prices and foreign exchange curves assumptions and a revision of its project portfolio, particularly in the exploration and production business.

Record output not enough to offset price hit

The fall in full-year profits came as sales revenues declined 10%, year-on-year, to nearly 272.1 billion reais, as lower prices offset increased production.

Outgoing Petrobras chief executive Roberto Castello Branco noted 2020 had seen Petrobras achieve record oil output of nearly 2.4 million barrels per day, while gas output hit a record high of more than 2.8 million cubic feet per day.

He added that about 66% of the company’s production came from its pre-salt fields off Brazil, at an average lifting cost of $2.5 per barrel of oil equivalent, compared to the company’s overall total average lifting cost of $5.2 per boe.

Branco takes positives amid 'challenging environment'

Despite the fall in profits, Castello Branco was upbeat over the company’s 2020 performance, which he described as “superb” amid “a very challenging environment” following the collapse in oil prices and the Covid-19 pandemic.

“Whereas oil prices plunged 35%, our operational cashflow (CFFO) went up 13% and free cash flow (FCF) 20%,” Branco stated.

“CFFO reached $28.9 billion, the highest of the last 10 years, even comparing with a period of oil prices around $100 per barrel, more than double of last year’s average price of $42 per barrel. When compared to major oil companies, Petrobras was the only one to show an increase in a very challenging environment.”

He added that free cash flow of $22.1 billion was an all-time high figure for the Brazilian company, while also claiming it was almost eight times the average number among major oil companies, of $2.8 billion.

Finance

Impairment reversals keep Petrobras in the black