Aug. 3 (Bloomberg) -- Petroleo Brasileiro SA, Brazil’s state-run oil company, will struggle to meet its 2009 domestic oil production target and spend the next three years wringing output from mature wells before new fields come on line, Chief Executive Officer Jose Sergio Gabrielli said.

Producing an average 2.05 million barrels of crude a day in Brazil this year “is going to be a hard task,” Gabrielli said in an interview at the company’s headquarters in Rio de Janeiro. “We are going to have a big fight every day.”

The company, known as Petrobras, recorded average output in the first six months of 1.958 million barrels a day after maintenance shutdowns, and Credit Suisse said on July 20 the full-year target is “virtually unachievable.” Petrobras is relying on fields that have been in production for as long as 60 years to maintain output before new projects start in 2013.

Pre-salt oil will enable Petrobras to become one of the five largest energy companies by production by 2020, Gabrielli, 60, said. The Brazilian producer plans to more than double its total oil and natural-gas equivalent production to 5.7 million barrels a day, from 2.51 million at the end of June, he said.

The pre-salt area runs 800 kilometers (500 miles) along Brazil’s coast and has oil deposits beneath a layer of salt resting as much as 3,000 meters (9,843 feet) beneath the ocean surface and another 3,000 to 5,000 meters below the seabed.

‘Bigger Success Rate’

Petrobras expects to have a “much bigger success rate” than the industry average of striking oil in 25 percent to 30 percent of the wells drilled, Gabrielli said. So far, the company has a success rate of about 87 percent, he said.

“It’s impossible to have a 100 percent success rate in the pre-salt,” he said.

Petrobras, currently the world’s 9th-largest company by market value, is investing $174 billion over the next five years to develop those fields. The company expects oil prices to be volatile over that period, and average between $45 and $65, Gabrielli said. Crude rose above $71 a barrel for the first time in a month today, closing at $71.22 in New York. Prices are up 60 percent this year and are down 51 percent from a record $147.27 a barrel on July 11, 2008.

He ruled out acquisitions and said the company will expand through organic growth.

Pre-Salt Rules

Brazilian Chief of Staff Dilma Rousseff will present a proposal for new rules to govern development of the pre-salt region to President Luiz Inacio Lula da Silva on Aug. 5, Jose Mucio, minister of institutional relations, told reporters today in Brasilia.

The new regulation will define how the government awards exploration contracts in 62 percent of the pre-salt area Gabrielli said, adding that he wants Petrobras to be responsible for the exploration of the areas not awarded yet.

Gabrielli, part of a commission working on the proposals, declined to comment on his expectations for Petrobras’s role under the new legislation, citing a confidentiality agreement with the government.

“We think we are the best company, because we have the best knowledge, expertise, technical capacity and can meet financial needs,” he said. “I assume that, as we have a very new and big exploratory frontier, many international companies are going to come.”

Senate Investigation

A Senate investigation set to start Aug. 6 into the company’s tax and spending policies will be a “big crisis” for Petrobras, Gabrielli said. “The main problem in this reputation crisis is that you don’t know from where you are going to get the attack,” he said.

Lawmakers will investigate allegations Petrobras improperly reduced its tax bill, overpaid for goods and services and may have favored supporters of the president in making charitable donations. Gabrielli denied the claims in a July 14 statement.

Standard & Poor’s decision to downgrade Petrobras to the lowest investment grade in June was based on “the wrong analysis,” Gabrielli said. “We have a very strong cash flow, a very efficient management of costs.”

The stock, up 43 percent this year, trades for 12 times the average of analysts’ estimates for 2009 earnings, according to data compiled by Bloomberg. That compares with an estimated price-to-earnings ratio of 18 for Exxon Mobil Corp., which dropped 12 percent in New York trading this year. BP Plc is valued at 13 times its profit estimate. The shares declined 3 percent this year in London.

Petrobras rose 3.4 percent to 32.55 reais in Sao Paulo.

To contact the reporter on this story: Helder Marinho in Rio de Janeiro hmarinho@bloomberg.net.

Last Updated: August 3, 2009 20:47 EDT