BRAZILIAN state-led oil company Petrobras said on Friday its first- quarter profit hit a record high, rising 42% from a year earlier on exchange rate fluctuations, investment earnings and higher oil prices. Petrobras reported earnings of 11 - billion reals ($6,7b n), beating estimates on a combination of higher revenue, a stronger real and returns from investment of cash raised in a $70b n stock offering last year. But the company posted a $58m loss in its refining division, the result of a policy that keeps fuel prices fixed for Brazilian consumers even as crude prices rise in world markets. The policy helps Brazil control inflation, but lowers the profitability of its diesel and petrol sales. "The loss resulted from higher acquisition costs of oil and imports of fuel," Petrobras said, citing a 38% increase in the Brent crude price. Even with record profits, investors are likely to look beyond Petrobras’s quarterly result to its 5- year investment plan. The plan, which was to have been released on Friday, will likely increase what is already the world’s largest corporate investment programme beyond the $224b n already budgeted for the 2010-14 period. The plan will include new investment for the development of an estimated 5-billion barrels of offshore oil reserves that the company acquired last year through an oil-for- shares swap with Brazil linked to the stock sale last year. Petrobras’s board met on Friday without approving the 2011-15 plan and company officials did not give any date for its release. Brazil hopes to nearly double oil output by 2020. Much of the output is expected to come from fields buried deep beneath the ocean off the coast of Rio de Janeiro in a region known as the subsalt. The area is believed to hold more than 50-billion barrels of oil, enough to supply all US consumption for more than seven years. But Petrobras faces growing challenges to increase production from the fields, some more than 7km below the ocean, as its almost 2- million barrels a day of shallow- water production begins to decline. It missed its production targets last year , as it did in previous years. Earnings before interest, taxes, depreciation and amortisation , a key measure of a company’s cash generation , rose 7% to 16,1-billion reals from 15,1-billion last year . Net revenue rose 9% to 54,8-billion reals , spurred by higher oil prices that resulted from unrest in the Middle East and North Africa. Profit rose 4% over the previous quarter, also on financial gains and higher revenue. The company cut prices for fuel in 2009 in the wake of the financial crisis as oil prices plummeted, but did not raise them again even as oil broke through $100 per barrel on tension in North Africa and the Middle East. Brazil’s energy minister last week said he was pressuring Petrobras’s fuel distribution division to cut prices at the pump. Investors have expressed concern that government influence at the company could push it to prioritise social development issues ahead of returns for shareholders. Reuters

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