Saturday 23 July 2011
The Rio de Janeiro-based company approved a $224.7 billion investment program for the 2011-2015 period that showed significant changes in its composition but totaled little more than the $224 billion plan for the 2010-2014 period, according to a securities filing.
Petrobras will invest 57 percent of total capital expenses in extracting oil, compared with 53 percent in the previous plan, the filing said. Refining, transport and sales activities will account for 31 percent of total investment, compared with 33 percent previously.
"Markets will welcome the plan if a good chunk of it goes to upstream activities — exploration, production — and less to refining," Andres Kikuchi, an analyst with Link Investimentos, a Sao Paulo-based brokerage, said before the announcement.
The investment plan, the oil industry's largest, aims to tap some of the world's largest deep-sea oil deposits and more than double production by the end of the decade to 6.42 million barrels a day.
For the first time in five years, Petrobras refrained from major increases in its capital spending plan, signaling a possible shift toward more budget discipline. Chief Executive Jose Sergio Gabrielli has defended spending increases by saying they could generate new revenue, keeping finances sound.
Petrobras said the revised investment plan "preserves the necessary conditions to keep the company's investment grade ratings," according to the filing. Rating companies warned last year that excess borrowing could lead to a deterioration in the company's credit quality and trigger a downgrade.
Investors long balked at the prior budget because a significant part of it was slated for refining projects that create jobs at the expense of profits, spurring charges that the company is subject to growing political interference. The federal government is Petrobras' largest shareholder.
The firm had originally pitched a larger plan of about $260 billion but were told by government representatives to cut back because of inflation and other policy concerns, sources familiar with the situation told Reuters in June.
By keeping spending stable, Petrobras might not need to raise domestic gasoline prices, one of the government's biggest worries, Paula Kovarsky, an oil industry analyst with Itau Unibanco, recently said.
Brazil's oil finds have put it in line to become a major global supplier of crude. Four of the world's ten biggest discoveries since 2000, including the offshore Lula and Franco finds, were made off the South American nation's coast.
Petrobras hopes to become the world's largest publicly listed oil company within the next decade by tapping those vast reserves in the region known as the subsalt.
However, nonvoting shares of Petrobras — the company's most widely traded class of stock — have tumbled 15 percent over the past 12 months despite a global run-up in crude prices that helped lift the price of competitor Chevron by 48 percent and Exxon Mobil by 44 percent.
Shares of Petrobras fell 0.1 percent on Friday to 22.97 reais, the fourth decline in five sessions. The stock has shed 15 percent this year.
Analysts say that Petrobras faces an uphill battle to execute its ambitious plans after failing to meet its 2010 investment target and consistently struggling to meet output goals.
Other worries about the extent of the spending include Petrobras' plan to buy rigs and offshore platforms from local shipyards as a way of ensuring oil revenues generate economic development for Brazil.
To keep from boosting costs, Petrobras will earmark $13.6 billion from the five-year budget to control expenses and improve efficiency.
To fund its ambitious investments, Petrobras said it would tap bond markets for up to $12 billion annually but it would not require additional stock sales, after a record offering raised $70 billion last September.
Under the guidelines of the new plan, Petrobras will also cut back spending this year to 84.7 billion reais ($54.6 billion) from 93 billion reais in the prior budget.