Petrobras Slashes Business Plan 25 Percent to $74 Billion

  • Looks to exit biofuels, fertilizer production, petrochemicals
  • Petrobras sees $19.5 billion in divestments in 2017-2018

Petroleo Brasileiro SA reduced investments by 25 percent and is accelerating asset disposals as it downsizes to withstand low international oil prices amid Brazil’s deepest two-year recession on record.

The 2017-2021 business plan focuses on accelerating debt reduction and retreating from peripheral businesses such as biofuels, fertilizers and petrochemicals to focus on the most profitable project in deep waters, Chief Executive Officer Pedro Parente said at a press conference Tuesday. Petrobras, as the Rio de Janeiro-based oil producer is known, has reduced its five-year investment target to $74.1 billion from $98.4 billion in the most recent plan. Its shares gained 3.2 percent to 13.47 reais at 2:07 p.m. in local time.

“Petrobras wants to spend less to produce the same,” Parente said. “In oil and gas we won’t be a smaller company.”

Investors are closely watching the company’s ability to reduce leverage after its debt surged during the commodities boom because it was investing in unprofitable refineries and subsidizing fuel imports as part of a government push to control inflation. Net debt-to-EBITDA is expected to fall to 2.5 in 2018, faster than the internal leverage targets set in previous plans. Chief Financial Officer Ivan Monteiro said the company doesn’t need to tap capital markets to finance the business plan at current borrowing costs.

“Leverage is bad cholesterol,” Monteiro said. “The company can’t pay this premium.”

Petrobras is pursuing one of the most ambitious divestment plans since BP Plc sold more than $30 billion in a downsizing strategy after the Deepwater Horizon oil spill. The state-controlled company plans to raise $19.5 billion from divestments in 2017 and 2018, in addition to the $15.1 billion target for the two years through the end of 2016. The company has identified enough assets it is willing to sell to surpass the combined target, Monteiro said.

Domestic oil production is targeted to grow to 2.77 million barrels a day in 2021, with total oil and gas production, including foreign operations, reaching 3.4 million barrels of oil and equivalents. Petrobras planned to produce 2.7 million barrels a day of oil in Brazil in 2020 in the previous plan. The focus of future investments will be on deep-water projects with low break-even costs, the company said.

Petrobras is developing the largest group of offshore discoveries this century in the South Atlantic in a region known as the pre-salt, and said it will prioritize partnerships with other producers to share experience and technology. It is studying possible joint-venture projects where it would pay partners with oil to compensate for their investments, said Solange Guedes, the head of exploration and production.

“All over the world the pre-salt is recognized as a premium asset,” Monteiro said.

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