Petrobras cuts investment, production: Update

Updates throughout.

Brazil's state-controlled Petrobras slashed its 2020 investment spending plan by almost 30pc and will trim around 100,000 b/d of domestic production in response to the coronavirus and market oversupply.

Petrobras now plans to invest around $8.5bn this year, compared with $12bn earmarked under its $75.7bn 2020-24 business plan. The spending cuts will come from postponed exploration activities, interconnection of wells, and construction of production and refining facilities, Petrobras said.

"We are living like someone in a black room, we can see nothing," Petrobras chief executive Roberto Castello Branco said today, adding that there were no taboos or sacred cows in the company's effort to weather the global crisis.

The company is shutting in around 23,000 b/d of production from shallow-water deposits, but it will proceed with the sale of shallow-water assets, which form a small part of its $20bn-$30bn divestment portfolio. The company says these cuts were made based on questions of economic feasibility and the result of studies that preceded the crisis.

The other 77,000 b/d of reduced output will come from deepwater deposits, starting this month. These cuts were made because of lack of demand, complicated by oil inventory built up in February during a 20-day oil workers strike.

Petrobras warned of the possibility of further output reductions. "The company will evaluate market conditions and, if necessary, will make new adjustments in oil production."

Petrobras produced around 2.139mn b/d of oil in February, down almost 8pc compared with January, according to the latest data from oil regulator ANP. The firm had set a 2020 domestic output of 2.2mn b/d, just above the 2019 level.

Upstream director Carlos Alberto Pereira de Oliveira said it was too early to know if the crisis would derail the company's production target for 2020 or beyond.

Petrobras has said pre-salt oil production is viable at around $35-$45/bl, far exceeding current global oil prices. Around 80pc of the company's production is from pre-salt deposits, which are the anchor for Brazil's long-term upstream growth projections. Brazil is a major non-Opec oil producer.

"Given the high level of uncertainty prevailing in the global economy, we believe it is premature to make revisions in the baseline scenario and oil price projections. Such revisions will be made when the uncertainties and the consequent price volatility diminish," Petrobras said, adding that it continues to look for opportunities to cut operating and administrative costs.

Spending will be partially financed by around $11.5bn in debt, including $8bn from credit lines the company drew on last week and forthcoming disbursements of around $3.5bn.

The company also plans to reduce around $2.4bn from staff expenses, and $2bn from operating costs. Petrobras has also pushed around $1.7bn in dividend payments to 15 December.

The company has put a 90-day moratorium on any material contracts, which could delay forthcoming deals for floating production, storage and offloading (FPSO) units planned to come on stream from 2022.

Shell, a partner in some of Petrobras' biggest pre-salt projects, says it is "working to keep the production at its operated assets at normal levels."

The Shell operated BC-10 block--home to the Ostra, Abalone, Argonauta post-salt fields-- produced around 45,000 b/d of 18°-24°API crude with sulfur content of around 0.42pc in February, according to data from Brazil's hydrocarbons regulator (ANP).

Shell holds a 50pc stake in the Campos basin block. Indian state-controlled ONGC Videsh holds 23pc and Qatar's state-owned QP holds the remaining 27pc.

Downstream, Petrobras said the virus has already significantly reduced fuel demand and that it is monitoring markets and adjusting production at refineries.

Refinery run cuts

Last week the company suspended a sales process for eight downstream assets with around 1.1mn b/d of refining capacity.

The company has suspended maintenance at refineries and lowered utilization rates to around 74pc from 80pc at the start of the year. Rates are likely to fall throughout April and May, downstream director Anelise Lara said today.

Lara said the company still sees a "good appetite" for IMO 2020 compliant marine fuel and is adjusting its refining network for products with more robust demand. Castello Branco mentioned that an expected record agricultural harvest in Brazil could also bolster diesel demand.

"We are following very strictly the international price every hour and every minute. But we will not use daily (wholesale fuel) price changes. We don't want to add more volatility to the market," Castello Branco said. The chief executive also pointed to an increase in fuel imports as proof the company remains committed to market-based pricing.

By Nathan Walters