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