Petrobras gets back on track with 25pc spending boost

A planned capex increase for 2020-24 comes as the firm clears several key legal hurdles in its attempt to secure divestments

Brazil's revitalised state-controlled oil firm, Petrobras, plans to increase capital expenditure (capex) by 25pc in its next five-year business plan, chief executive Roberto Castello Branco says.

Spending for 2020-24 should reach $105bn, of which around 86pc will be directed upstream, Castello Branco says. Capex under the firm's 2019-23 plan is $84bn, with about 82pc earmarked for upstream projects. After nearing bankruptcy in 2015-16, Petrobras has been selectively active in upstream auctions in Brazil. The firm has earmarked $10.8bn for exploration under its current business plan — a 59pc jump from the previous plan — and is likely to significantly increase that amount in the forthcoming plan.

Castello Branco says divestments to the end of 2024 should reach $35bn, up by 30pc from the $27bn envisaged for 2019-23. The rise is partially related to the planned sale of around half of the firm's 2.2mn b/d of domestic refining capacity, which is expected to generate around $15bn according to some estimates. A recent federal supreme court decision and an agreement with anti-monopoly watchdog Cade have cleared the path for Petrobras to sell these eight refineries.

Petrobras controls around 98pc of Brazil's refining capacity. Under the agreement with Cade, the firm cannot directly or indirectly hold stakes in the refineries it sells, and is prohibited from selling refineries in the same geographic areas to the same buyer — a measure intended to prevent regional monopolies. The company is obliged to finalise sales by 31 December. Cade says the agreement safeguards the refining sector from anti-competitive conduct.

National energy policy council CNPE has already approved the planned sales. And the federal supreme court last week ruled that Petrobras does not need congressional approval to sell subsidiaries. The firm is expected to roll out a tender for the refineries this month, and plans to sell more of its stake in fuel distribution arm Petrobras Distribuidora, cutting its interest to under 50pc from 71pc. And after appealing legal rulings, Petrobras on 13 June closed the sale of a 90pc stake in the 2.6bn ft³/d (26.8bn m³/yr) Tag gas pipeline to French utility Engie for $8.6bn.

Petrobras has been pursuing ambitious divestment plans for years in an effort to tame its massive $80bn debt load, much of it incurred when the government forced the company to sell fuel at a loss. "The reduction of debt will give us better conditions to invest, mainly in oil and gas production, and pay a lower interest rate," Castello Branco says.

Petrobras plans to release its new five-year plan in the fourth quarter. Before an oil price collapse in 2014, its five-year business plans regularly exceeded $200bn, but domestic oil production has been stuck at around 2mn b/d for the past 10 years. The firm plans to produce around 2.3mn b/d in Brazil this year, a 13pc increase from 2018, and is forecasting 5pc/yr growth in 2019-23.

Rights on time

Brazil's planned auction on 28 October of Petrobras' excess oil reserves in the giant pre-salt cluster known as the transfer-of-rights (TOR) region cleared a key hurdle on 5 June, when the lower house of congress approved a budget bill. The lower house voted in favour of a constitutional amendment that envisages a total payment of around 21bn reals ($5.4bn) to Brazil's states and municipalities, representing around a fifth of the R106bn that the auction is expected to generate in signature bonuses. It also allows for a $9.1bn settlement to Petrobras, which the firm says must be paid ahead of the tender. Legislation enabling the sale of the excess reserves has been stuck in congress since last year over a failure to agree on how much states and municipalities would receive from the sale.