Petrobras cuts oil, gas output goals in new plan

Petrobras cuts oil, gas output goals in new plan
Updated 15 June 2012

Petrobras cuts oil, gas output goals in new plan

Petrobras cuts oil, gas output goals in new plan

SAO PAULO/RIO DE JANEIRO: Brazil’s state-controlled oil company Petrobras slashed its target for oil and gas output in a $236.5 billion, five-year investment plan announced, setting less ambitious goals as the cost of developing offshore resources soars.
Under the 2012-2016 plan, the world’s largest corporate investment program, Petrobras will produce 5.7 million barrels of oil equivalent per day (boepd) in Brazil and abroad in 2020, 11 percent less than in its previous five-year plan announced last year.
Investors say the company, which is majority-owned by the federal government but has most of its shares in the hands of non-government investors, is being increasingly used by Brazilian President Dilma Rousseff to create jobs and boost economic development at the expense of long-term profit growth.
“The key now is to provide clear and reachable goals, to dial down the politics and increase results,” said Adriano Pires, head of Brazilian Infrastructure Institute, a Rio de Janeiro-based energy research group.
The plan, unveiled in a securities filing, also estimates 2016 output at 3.3 million boepd, nearly one-fifth less than the prior plan projected for 2015.
The new program will earmark more money for exploration and away from refining, reinforcing a shift toward the more profitable activities that investors have long called for. Petrobras will seek to “perfectly align fiscal and financial goals for every project,” in a sign of commitment to better execution and financial discipline standards.
Christian Audi, an analyst with Santander Investment Securities, said in a report that Chief Executive Officer Maria das Gracas Foster’s pragmatic approach likely helped the company pursue “more realistic production targets” for the coming years.
Petrobras preferred shares, the company’s most-traded class of stock, fell 3 percent to 18.34 reais, its biggest one-day drop in more than three weeks.
The investment program for the 2012-2016 period is 5.3 percent larger than the $ 224.7 billion plan for the 2011-2015 period.
Despite the discovery of some of the world’s largest oil fields and the largest ever stock sale in 2010, the company’s shares are worth less today than in October 2007, when the first of the giant offshore “subsalt” finds was announced.
“Past plans have had a lot of fictive elements, despite huge spending they haven’t met output goals and production has been stagnant,” Pires added.
Under the guidelines of the plan, Petrobras will invest 60 percent of total capital expenditures in exploration and production, known as E&P, compared with 57 percent in the previous plan. Refining, transport and sales activities will account for 27 percent of total investment, compared with 31 percent previously.
Despite large increases in world crude oil prices, the government has prevented Petrobras from raising wholesale gasoline, diesel and cooking gas prices, part of efforts to control domestic inflation. This has saddled the refining unit with large losses for nearly a year.
The company has also been at the center of government efforts to meet a 65 percent “domestic content” rule for the purchase of the hundreds of ships and oil platforms and other goods and services needed to develop offshore oil resources, moves that have led to increases in costs.