Brazil’s Petro­bras ex­pected to slash in­vest­ment, out­put un­der 5-year plan

The Sun (Malaysia) - - SUNBIZ -

RIO DE JANEIRO: Brazil’s heav­ily in­debted state-led oil com­pany Petro­bras will likely cut planned in­vest­ment by about a sixth and its 2020 out­put goal by 14% un­der a five-year strate­gic plan that could be re­leased as early as yes­ter­day af­ter mar­kets close, ac­cord­ing to an­a­lysts.

Petroleo Brasileiro SA, as the com­pany is for­mally known, is ex­pected to an­nounce a 2017-2021 cap­i­tal bud­get of US$82.7 bil­lion (RM341.5 bil­lion), or an av­er­age of US$16.6 bil­lion a year, ac­cord­ing to the av­er­age es­ti­mate of eight an­a­lysts sur­veyed by Reuters.

That would be Petro­bras’ small­est fiveyear cap­i­tal bud­get since 2006 and 16% less than the Rio de Janeiro-based com­pany’s 2015-2019 plan re­vised in Jan­uary.

The cuts would be part of CEO Pe­dro Par­ente’s fight to curb the com­pany’s nearly US$125 bil­lion of debt, the largest in the world oil in­dus­try, and fo­cus spend­ing on crude oil ex­plo­ration and pro­duc­tion needed to pay it.

Par­ente’s ef­forts are com­pli­cated by oil prices at some of their low­est lev­els in a decade, a cor­rup­tion scan­dal that has un­der­mined investor con­fi­dence and huge losses on money-los­ing re­finer­ies and do­mes­tic fuel sub­si­dies.

Petro­bras’ said last week that its board of direc­tors yes­ter­day would “ap­pre­ci­ate” the plan, un­der devel­op­ment since June. If ap­proved, Petro­bras is ex­pected to re­lease the plan im­me­di­ately.

“This plan is very im­por­tant for set­ting ex­pec­ta­tions at a com­pany that has con­sis­tently missed ex­pec­ta­tions,” said Luana Sigfried, oil and gas an­a­lyst with Ray­mond James in Hous­ton.

“The com­pany will have to cut enough to show it’s be­ing re­al­is­tic, but not so much that its fu­ture out­put falls too far.”

When com­bined with a prom­ise to sell US$15 bil­lion of oil­fields, pipe­lines and other as­sets by year-end and US$43 bil­lion through 2018, Par­ente said he hopes the plan will fo­cus cash on the com­pany’s port­fo­lio of gi­ant off­shore oil dis­cov­er­ies south of Rio de Janeiro.

Petro­bras’ con­trol­ling share­holder, the Brazil­ian gov­ern­ment, is also count­ing on those fields to kick-start Brazil’s re­ces­sion­mired econ­omy. Petro­bras is re­spon­si­ble for about 10% of Brazil’s gross do­mes­tic prod­uct.

The plan will also show how far Par­ente, ap­pointed by new Pres­i­dent Michel Te­mer, is pre­pared to go to let the com­pany re­verse the poli­cies of for­mer Brazil­ian Pres­i­dent Dilma Rouss­eff, re­moved from of­fice for break­ing bud­get laws in Au­gust.

A for­mer Petro­bras board chair­woman, she built up Petro­bras dur­ing a com­modi­ties boom only to see her plans un­ravel along with nearly US$250 bil­lion of share­holder value.

“The new five-year busi­ness plan is the most im­por­tant trig­ger in the short term,” said Diego Mendes, an­a­lyst at Banco Itau BBA in Sao Paulo in a note to clients.

“If the plan is suf­fi­ciently ro­bust it will help sus­tain the pos­i­tive dy­nam­ic­for Petro­bras shares.”

Petro­bras’ pre­ferred shares, its most traded class of stock, have risen 96% so far this year.

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