Petrobras’s Plan Increases Spending, Cuts Output Target

Petroleo Brasileiro SA (PETR4), Brazil’s state-controlled crude producer, cut its long-term output target by 11 percent and said spending will rise to $236.5 billion through 2016 as it increases investment at offshore oil fields.

Petrobras forecasts output of 5.7 million barrels a day by 2020, down from a previous goal of 6.4 million barrels, the Rio de Janeiro-based company said today in a statement. About $141.8 billion of the projected spending will help finance exploration and production as Petrobras ramps up output at offshore fields.

The company is struggling to acquire the drilling equipment and platforms needed from local and foreign shipyards to tap the so-called pre-salt oil reserves located deep beneath the ocean floor off Brazil. Chief Executive Officer Maria das Gracas Silva Foster took over earlier this year from Jose Sergio Gabrielli after output in 2011 rose at the slowest pace in four years. Production is expected to remain little changed this year and in 2013, the company said.

“If you’re a new CEO it might be fairly natural to reset the target to have something more realistic to measure yourself against,” Nick Robinson, who helps manage $15 billion of Latin American shares at Aberdeen Asset Management Plc in Sao Paulo, said by telephone. “It wasn’t the positive surprise a few people were hoping for and there was no news on gasoline prices.”

Petrobras fell 3.9 percent to 18.17 reais, the lowest since November 2008. The stock has dropped 15 percent this year, more than a 2.5 percent decline in Brazil’s benchmark Bovespa (IBOV) index.

Imported Gasoline

Petrobras has been selling imported gasoline at a discount in Brazil because of a government policy to fix fuel prices as it seeks to curb inflation. Foster, who became CEO in February, said June 11 that the company doesn’t plan to increase gasoline prices after the recent decline in international oil prices

Exploration spending will rise 11 percent, the biggest increase of any business unit, as Petrobras develops pre-salt reservoirs that hold the largest discoveries in the Western Hemisphere since Mexico discovered Cantarell in 1976.

“There were expectations that output would grow” at a faster pace, Luiz Otavio Broad, an analyst at Agora CTVM SA brokerage, said in a phone interview from Rio de Janeiro. “It’s negative.” Broad rates Petrobras buy.

In 2010 Petrobras bought rights from the government to produce as much as 5 billion barrels of crude from fields including Libra, the second-biggest discovery in Brazil, increasing its exploration costs. The new plan will prioritize oil and natural gas production in Brazil, Petrobras said in the statement.

Asset Sales

Petrobras expects to raise $14.8 billion from the sale and restructuring of assets, with a focus on foreign assets, the company said. It plans to borrow up to $18 billion a year to finance investments and it expects the Brent benchmark oil price to trade within $90 to $100 a barrel through 2016, it said.

“If the crude price continues falling it will have less money and everything will get delayed even more,” Juan Ramon Fernandez Arribas, an independent analyst based in Madrid, said in an e-mail. “This plan will devalue all the pre-salt assets.”

Cash flow for the five years through 2016 will be at $38 billion to $44 billion, depending on oil prices, Petrobras said. Petrobras expects its debt to equity ratio to remain within its target of 25 percent to 35 percent, it said.

To contact the reporters on this story: Peter Millard in Rio de Janeiro at pmillard1@bloomberg.net; Rodrigo Orihuela in Rio de Janeiro at rorihuela@bloomberg.net

To contact the editor responsible for this story: Dale Crofts at dcrofts@bloomberg.net

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