Petrobras cuts investment, production plans

The uncertain market conditions mean the firm is not ruling out even deeper reductions later this year, writes Nathan Walters

Brazil's state-controlled Petrobras has slashed its 2020 spending plan by almost 30pc and will trim around 100,000 b/d of domestic production in response to 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 postponements to exploration activities, well interconnection and the construction of production and refining facilities, the firm says.

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

The firm 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. These cuts were made based on questions of economic feasibility and as a result of studies that preceded the crisis, the company says. The other 77,000 b/d of reduced output will come from deepwater deposits, starting this month.

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

Petrobras produced around 2.12mn b/d in February, down by almost 8pc compared with January, data from oil regulator ANP show. The firm had set a 2020 domestic output target of 2.2mn b/d, just above its 2019 production.

Upstream director Carlos Alberto Pereira de Oliveira says it is too early to know whether the crisis will derail the company's production target for 2020 or beyond. Petrobras says pre-salt oil production is viable at $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. The country 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," Petrobras says. "Such revisions will be made when the uncertainties and the consequent price volatility diminish." But the firm continues to look for opportunities to cut operating and administrative costs.

Striving for normality

Petrobras' spending will be partially financed by around $11.5bn in debt, including $8bn from credit lines that the company drew on this month and forthcoming disbursements of around $3.5bn. The firm also plans to reduce around $2.4bn from staff expenses, and $2bn from operating costs. And Petrobras has pushed around $1.7bn in dividend payments back to 15 December.

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".

Downstream, Petrobras says the coronavirus has already significantly reduced fuel demand and that it is monitoring markets and adjusting production at refineries. And the company this month suspended a sales process for eight downstream assets with around 1.1mn b/d of refining capacity.

The firm has suspended maintenance at refineries and lowered utilisation rates to around 74pc, from 80pc in January. And rates are likely to fall in April and May, according to downstream director Anelise Lara. "We are following the international price very strictly," Castello Branco says. "But we will not use daily [wholesale fuel] price changes. We do not want to add more volatility to the market."