Petrobras trims 2016 investment plan

OREANDA-NEWS. August 15, 2016. Brazil's state-controlled oil company Petrobras has trimmed around \\$2.5bn from its already winnowed 2016 investment target, part of the firm's plan to tame its massive debt load.

Under its initial 2015-19 business plan in June 2015, Petrobras planned to invest \\$27bn this year. That was subsequently cut to \\$19bn in October 2015 and then increased to \\$20bn in January of this year.

The company invested around \\$7.4bn in the first half of this year, most of which was spent on upstream projects, down from \\$12.2bn in total capital spending in the same period of 2015. Spending is expected to increase in the second half of this year, but will still fall short of the year's target.

In a conference call today, upstream director Solange Guedes says the cut in capital expenditures will not impact the modest domestic oil production growth planned for 2016-17. The company is expected to announce revised upstream growth targets for 2018 and beyond when it releases its new five-year plan in late September.

Petrobras produced an average of 2.056mn b/d of oil in Brazil in first half 2016, down 3.4pc compared with the same period of 2015. The company says flow rates should climb from current production of around 2.2mn b/d to 2.3mn b/d by year-end, helping the company meet its 2.145mn b/d 2016 domestic oil production target.

Petrobras earlier scaled back cut its 2020 production goal of 4.2mn b/d to 2.7mn b/d, a target that is likely to be further reduced under the new plan. The firm has not announced a 2017 target.

The company's upstream partners, such as Portugal's Galp, have voiced concern over delays in platform construction projects.

The fallout from a massive corruption investigation has put many of Petrobras' platform contractors into a financial bind, increasing the likelihood of more delays in the delivery of 16 floating production, storage and offloading (FPSO) units planned by 2020.

Petrobras is doubling down on its upstream sector, pulling back on its downstream sector that has been a particular focus of the comprehensive corruption probe into kickbacks and bribery.

A drop in domestic demand and above-market domestic fuel prices have allowed the company to recuperate some of its earlier financial losses spawned by retail price controls in 2010-14.

Petrobras has postponed the completion of the 165,000 b/d Comperj refinery project in Rio de Janeiro until 2020 and will not complete a second 115,000 b/d phase at the Abreu e Lima refinery in Brazil's northeast until 2019, at the earliest.

In today's call, Petrobras downstream director Jorge Celestino Ramos said Comperj does not currently make sense for the company, at least without a strategic partner.

The only investment at the refinery relates to the natural gas treatment unit (UPGN) designed to handle associated gas produced in massive offshore sub-salt fields.

Petrobras reported a modest \\$106mn profit in the second quarter, snapping a three quarter loss streak. The company made a \\$171mn profit in second quarter 2015.

To keep its spending on track, Petrobras is looking to unload around \\$14.6bn in assets this year, up around \\$200mn from its previously announced divestment target. Agreements for substantial upstream and midstream assets are advancing and the company says it remains confident it will meet its goal.

To bridge a funding gap, the company has also entered into loan negotiations with multiple Chinese banks. Earlier this year the company announced it was seeking a \\$10bn export-backed loan with China Development Bank.

"Talks with Chinese Development Bank are complex. The contract for the export-backed loan is precisely about how we create the necessary conditions so that export volumes meet our expectations. We are having intense negotiations to improve the conditions compared with the 2009 contract," Petrobras chief financial officer Ivan Monteiro said today.

The \\$10bn, 10-year export-backed agreement signed in 2009 covered around 150,000 b/d of Brazilian crude based on market prices.

Petrobras exported 341,000 b/d of crude in the second quarter, up from 307,000 b/d in the first quarter but short of 405,000 b/d in second quarter 2015.