On Apr 22, 2015, Brazil's state-run energy giant, Petroleo Brasileiro S.A., or Petrobras (PBR - Analyst Report), announced its much delayed fourth-quarter 2014 results. In fact, this the first time in the last eight months that the company has come out with audited results.

Petrobras reported fourth-quarter 2014 loss of $9,722 million against a profit of $2,760 million earned in the year-earlier quarter. Loss per ADR came in at $1.5 (1 ADR = 2 shares) against the year-ago profit of 42 cents.

Net operating revenue came at $33,409 million, down from the year-earlier level of $35,593 million.

Total write-off charges of roughly $2.1 billion, owing to the company's involvement in a multibillion dollar money laundering scandal, along with significant lower profits from both the upstream and downstream business, hurt the results.  

For the year ended Dec 31, 2014, Petrobras reported loss of $1.12 per share, against the year-ago profit of $1.7 per share. Revenues were recorded at $143.7 billion, higher than the year-ago number of $141.5 billion.  

Segmental Performance

Upstream: Petrobras’ total oil and gas production during the fourth quarter reached 2,799 thousand barrels per day (MBbl/d), up from 2,534 MBbl/d recorded in the year-ago quarter.

Compared with the Oct-Dec quarter of 2013, the company’s Brazilian oil and natural gas production increased 11.2% to 2,603 MBbl/d, while international production came in at 196 MBbl/d (against 194 MBbl/d in the corresponding period in 2013).

During the fourth quarter of 2014, the average sales price of oil in Brazil decreased 31.4% from the year-earlier period to $66.49 per barrel. Average sales price of international oil was down almost 15% year over year to $73.66 per barrel. These factors significantly hampered the upstream (or exploration & production) segment’s profits by 78.5% to $1,688 million.

To some extent, the downside was arrested by a 23.4% dip in Petrobras’ exploration costs, which totaled $587 million. Moreover, domestic and international natural gas prices were up 1% and 2.6% respectively from the fourth quarter of 2013.

Cost per barrel (or cost to produce each barrel of oil) moved down slightly by 0.8% in Brazil to $14.21, while overseas costs fell 11.3% to $10.40.  

Downstream: During the fourth quarter, Petrobras’ downstream unit incurred net loss of $12,087 million, wider than the loss of $3,607 million a year ago. The downfall was owing to overpayments − that were capitalized − write off and the writing off of the capitalized costs involved in Premium I and II refineries.

Refining costs per barrel in Brazil were down 6% to $2.71. However, internationally, it rose 18.2% to $5.25. Petrobras imported an average of 783 MBbl/d, marginally higher (by 0.4%) than the same period in 2013. In particular, oil product imports were 3.3% less than the year-earlier period.    

Capital Spending & Balance Sheet

During the three months ended Dec 31, 2014, Petrobras’ capital investments and expenditures totaled $9,664 million. At the end of the quarter, the company had cash and cash equivalents of $16,655 million and net debt of $106,201 million. Net debt-to-capitalization ratio was approximately 48%.   

Petrobras Scandal Cost $2.1 Billion

Petrobras has been involved in multi-billion dollar money laundering and bribery cases that have affected its share price. Moreover, the company is not being able to get money either from the bond or equity markets to finance its growth projects. Investors have started to take Petrobras lightly and don’t expect it to turn around in the near future.

In its much-delayed fourth-quarter 2014 audited results, the company wrote off all the overvalued assets – which included refineries − and payments that were wrongly capitalized. Petrobras’ write-off charges totaled $2.1 billion, which dealt a blow to its fourth-quarter results.

Zacks Rank & Stock Picks

Petrobras currently carries a Zacks Rank #5 (Strong Sell), implying that the stock will significantly underperform the broader U.S. equity market over the next one to three months.

Meanwhile, some better-ranked players in the energy sector are CNOOC Ltd. (CEO - Analyst Report), Marathon Petroleum Corp. (MPC - Analyst Report) and Sprague Resources LP (SRLP - Snapshot Report). All these stocks sport a Zacks Rank #1 (Strong Buy).