Petrobras cuts investment, oil production

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.

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 other 77,000 b/d of reduced output will come from deepwater deposits, starting this month.

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.

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.

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

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

By Nathan Walters