Brazil’s embattled state oil company is deriving more gains from crude below $65 than at any point of the last price boom.

A combination of lower international prices and a slumping domestic economy turned Petroleo Brasileiro SA’s money-losing refining unit into a profit center, second-quarter earnings published Thursday show. That’s because it was selling imported fuel at a loss when prices were high and demand was strong, but not anymore.

Petrobras, as the world’s biggest deepwater producer is known, has been cutting spending after a debt-driven exploration campaign failed to deliver on ambitious goals. Plus, multibillion-dollar writedowns sapped profits last year, so the fuel unit gains are giving it a reprieve from bad news.

“At certain moments it can even be positive,” Luis Gustavo Pereira, an analyst at brokerage firm Guide Investimentos, said about the lower oil prices. Petrobras now “can make money selling imported fuel at higher prices.”

The state-run producer, based in Rio de Janeiro, reported 19.8 billion reais ($5.6 billion) in second-quarter earnings before interest, taxes, depreciation, and amortization. That exceeded the 19.2 billion-real average of three analysts’ estimates compiled by Bloomberg.

Fuel Business

The fuel division posted consecutive losses when oil was above $100/bbl, and then started making money in the first quarter after oil prices fell -- a display of how policies can determine its profits instead of markets. The government, which controls the company with the majority of voting shares and names its chairman, has withheld fuel-price increases to try to keep inflation in check.

Petrobras, which imports gasoline because it doesn’t produce enough to meet demand in Latin America’s biggest economy, was unable to match international prices during the boom. Profits at the unit surged to 5.6 billion reais in the quarter, compared with a 3.9 billion loss a year earlier.

Exxon Mobil Corp., Royal Dutch Shell Plc. and Chevron Corp. all posted robust profits from their refining and distribution businesses during a bull market for crude.

For Petrobras, the price crash has mostly eliminated the money-losing subsidies. It sold imported diesel at a 17% profit during the quarter, while the discount on gasoline narrowed to 5.3%, according to Banco Bradesco SA.

The company isn’t planning any fuel price increases and domestic prices have surpassed international rates, CEO Aldemir Bendine told reporters in Rio on Thursday.

The Ebitda result, which excludes one-time items, was 22% higher than a year earlier and beat every quarterly result when oil was trading above $100 a barrel.

‘Beautiful Result’

Sales of 79.9 billion reais matched the average estimate of five analysts tracked by Bloomberg. Net income shrank to 531 million reais, from 5.3 billion a year earlier, after the company booked 5.2 billion reais in impairment and tax charges.

Petrobras should have booked the tax charges a long time ago, Bendine, who took office in February, said Thursday at a press conference in Rio. The payments weren’t an effort to help the government improve its fiscal accounts, he said.

“It would be a beautiful result” without the charges, Bendine said. “Operationally it was good. We’re very satisfied.”

The company cut its five-year investment plan by 37% to $130 billion in June and lowered its production growth targets in an effort to reduce the industry’s largest debt load. The company is focusing on exploration and production, scaling back investment in refineries that have become the subject of Brazil’s biggest corruption scandal at a time of slumping crude prices and development bottlenecks.

Source: www.worldoil.com

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