Brazilian oil giant Petrobras has revised down its current five-year business plan through to 2019, cutting investments by a hefty 25%, as the company works to optmise its portfolio in light of a sharp drop in oil prices and the depreciation of the local currency.
Petrobras now expects to invest $98.4 billion from 2015 to 2019, a decline of about $32 billion from the $130.3 billion capital expenditure previously lined up for the period.
The new plan takes into consideration an average Brent price of $52 per barrel in 2015 and an assumed $45 per barrel in 2016, as well as an average nominal exchange rate of 3.33 reais to the US dollar in 2015 and a forecast 4.06 reais to the US dollar this year.
“These adjustments are designed to preserve the fundamental objectives of deleveraging and the generation of value for shareholders,” said Petrobras.
Petrobras will keep the bulk of its investments targeted at explor-ation and production activities. It will allocate $80 billion, or 81% of the total, to upstream spending, with an emphasis on developing existing discoveries in the Santos basin pre-salt province.
Another $10.9 billion will be channelled to downstream operations, followed by $5.4 billion to gas and energy and $2.1 billion to other departments.
Petrobras invested $23 billion in 2015, less than the $28 billion originally envisioned for the period. For this year, Petrobras has cut the forecast to $20 billion from $27 billion. Divestments for 2016 were kept unchanged at $14.4 billion.
“The biggest problem I see is that Petrobras is publicly confessing that it expects difficulties in carrying out its divestment plan and generating cash flow. The fact that oil prices have tumbled to $30 per barrel are also not helping the mood,” said Mauricio Pedrosa, strategist at Queluz Asset Management.
Diego Mendes and Pablo Castelo Branco, analysts at Itau BBA brokerage, also argued in a report to investors that the new investment cut will not help rebuild the market confidence in the company.
The new investment plan will result in a reduction in the projected domestic production level for 2016. Petrobras now estimates average output of 2.145 million barrels per day of oil, down from 2.185 million bpd in the original forecast.
The company produced 2.128 million bpd on average in 2015, meaning the 2016 outlook represents a mere 0.8% increase over the previous year, despite the fact that three large floating production, storage and offloading vessels are expected to enter operations this year.
The 2015 production figure was, nevertheless, the first time that Petrobras was able to reach its output target in more than a decade.
The 2.128 million bpd produced last year was also a record, and an increase of 4.6% from the 2.034 million bpd produced in 2014.
Petrobras also reduced its forecast for domestic production for 2020 to 2.7 million bpd from 2.8 million bpd.
Petrobras’ stock closed down more than 9% on Tuesday on Brazil’s Bovespa stock exchange — the company’s lowest level since May 2004.
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