Petrobras revisits output goals, strike ends

OREANDA-NEWS. November 17, 2015. Brazil's state-controlled Petrobras could scale back its medium-term oil production goals as it grapples with lower prices, a depreciated local currency and the impact of a systemic corruption scandal.

In a third quarter earnings call today, the company indicated that deep cuts to planned capital expenditures will not dent domestic production goals through 2017, but 2018-20 output targets are now under review.

Petrobras posted a \\$1.1bn loss in the third quarter, down from a \\$2.1bn loss in the same period of 2014.

In June, Petrobras cut around \\$90bn from planned capital expenditures in its 2015-19 business plan. In October, the company cut an additional \\$11bn from spending planned for this year and next, mainly the result of the depreciation of the Brazilian real.

Capital expenditures for this year total \\$25bn, with investment mainly earmarked for upstream operations.

The company said the second round of spending cuts will not derail its 2015 domestic production goal of 2.1mn b/d nor the 2.2mn b/d target for 2016. Under targets issued in June, domestic production is expected to reach around 2.3mn b/d in 2017 and steadily climb to 2.8mn b/d in 2020.

Plans for the arrival of nine new floating production, storage and offloading (FPSO) units through 2017 are on track, upstream director Solange Guedes said today. All but one of the units are headed for sub-salt fields in the Santos basin.

Petrobras plans to bring 11 FPSOs on stream in 2018-20, including the first FPSO planned for the 8bn-12bn bl Libra sub-salt block.

A tender for that unit is expected to launch by year?s end, but Dutch shipbuilder SBM Offshore says it has yet to receive tender documents despite assurances from Petrobras. SBM Offshore and around two dozen mainly Brazilian firms, including some key platform builders, were temporarily banned from bidding on Petrobras contracts for apparent links with corruption at the firm.

In October, SBM was invited to resume bidding for Petrobras contracts, while the others are still waiting for Petrobras to lift the moratorium.

A shrunken pool of contractors could increase Petrobras' costs for new units, adding to financial pressure on the firm.

Petrobras produced 2.136mn b/d of domestic oil in the third quarter, a 1pc increase over the second quarter and up 2.1pc year-on-year.

Total domestic production, including natural gas, in the first nine months of 2015 was 2.601mn b/d of oil equivalent (boe/d), an 8pc increase compared with the same period of 2014.

Petrobras? share of sub-salt production from the Campos and Santos basins accounted for 660,000 boe/d, or 25pc, of that amount. The company says sub-salt production should account for 50pc of domestic oil production by 2020.

Gross sub-salt production, including output from Petrobras' partners, reached 919,000 boe/d, a 53pc year-on-year increase.

Petrobras says its domestic oil output should grow to 2.121mn b/d this year, a 4.5pc increase, plus or minus 1pc, over 2014.

Looking ahead, a strike by oil workers that cost Petrobras around 1.5mn bl in lost production will diminish in the company's fourth quarter output. The strike started on 1 November and was mainly focused on Campos basin platforms before it ended today.

The FUP, a federation of oil workers unions, suspended the strike after reaching a deal with Petrobras that included a 9.53pc salary increase.

Oil workers were mainly striking against Petrobras? plan to shed around \\$15.1bn in non-core assets through 2016. Petrobras plans to sell around \\$700mn in assets this year, and has already entered into a R1.9bn (\\$500mn) agreement with Japanese trading house Mitsui for a 49pc stake in its natural gas distribution subsidiary Gaspetro.

Petrobras plans to kick off an international roadshow next week to drum up interest in upstream, distribution, and gas and power assets earmarked for sale.

Petrobras says it has the funds to meet short-term spending and it plans to finish the third quarter with \\$22bn in cash, down from \\$26bn at the start of the year. The company has already raised \\$11bn in debt deals this year, and has another \\$3bn slated before year-end.

The company now has around \\$25bn in financing available from various sources, but is still analyzing its financing needs for 2016, chief financial officer Ivan Monteiro said today. Monteiro says the company is partial to leaseback deals like a recent \\$2bn agreement covering two Campos basin platforms that the company closed with Industrial and Commercial Bank of China Leasing. Petrobras is also considering securitizing crude exports as a way to raise funds without issuing bonds.