Petrobras to Spend $130.5 Bln Between 2015-2019

Instant Max AI

(Petrobras, 29.Jun.2015) – On 26.Jun.2015, the Board of Directors of Petrobras approved the 2015–2019 Business and Management Plan. The plan earmarks investments of $130.3 billion for 2015-2019. The investment portfolio prioritizes oil exploration and production (E&P) in Brazil, especially in the pre-salt. Of the total amount, 83% ($108.6 billion) will go to E&P. In other business segments, investments are targeted basically at maintaining operations and projects related to transferring the oil and natural gas produced.

Total investments in the previous plan have been cut by 37% and are allocated to business segments as follows. Note: Table not available.

The basic objectives of the plan are to reduce the company’s indebtedness and to generate value for shareholders. The goal is to cut indebtedness levels by reducing leverage (Net Indebtedness/(net indebtedness + net assets)) to below 40% by 2018 and 35% by 2020, and the ratio of net indebtedness to Ebitda (earnings before interest, taxes, depreciation and amortization) to less than 3 by 2018 and 2.5 by 2020.

The financial plan is based on the following main assumptions:

— Oil product prices in Brazil at parity with imports;

— Brent Price (average): $60/bbl in 2015 and $70/bbl from 2016 to 2019;

— Exchange rate (average): as shown below. Note: Table not available.

The amount of divestment for the period between 2015 and 2016 has been revised to $15.1 billion (30% in Exploration and Production, 30% Downstream and 40% Gas and Power). The Plan also includes efforts to restructure business, retire assets and further divestment, totaling $42.6 billion between 2017 and 2018.

Divestment is common among large oil companies throughout the world. Over the past few years, in addition to mergers and acquisitions by the private oil companies, most asset acquisitions have been made by Asian national oil companies (NOC) and finance companies.

Of planned investments in E&P, 86% will be allocated to production development, 11% to exploration and 3% to operational support. $64.4 billion will be earmarked for new production systems in Brazil, including 91% of this figure for the pre-salt. In terms of exploration in Brazil, investments will be concentrated in the Minimum Exploratory Program for each block.

Downstream will receive investments of $12.8 billion, including 69% for maintenance and infrastructure, 11% for completing work on the Abreu e Lima Refinery and 10% for Distribution. The total amount includes investment in Comperj for receiving and processing gas, maintaining equipment, etc.

Gas and Power have been allocated $6.3 billion, chiefly for gas pipelines for transferring gas from the pre-salt, as well as the associated processing units (UPGNs).

Oil, NGL and Natural Gas Production Curve

The production targets for oil, NGL (natural gas liquids) and natural gas in Brazil have been updated to reflect the postponements of low-maturity projects and delays in the delivery of production units, largely due to limitations of Brazilian suppliers.

The company plans to reach total oil and gas production (domestic and international) of 3.7 MMboe/d in 2020, by which time the pre-salt will account for 66% of total oil production in Brazil.

The reduction in Petrobras’ investments follows a global trend in the oil and gas industry and is directly linked to the in oil prices on the world market. All companies in the sector, whether majors, national or independent, have been forecasting a cut in investments in all areas, including E&P. Average global E&P investments this year are down 20% on the 2014 figure.

The Plan allows for the adoption of measures for optimization and productivity gains to reduce Manageable Operating Costs (total costs and expenses, excluding costs related to basic materials). Actions already planned indicate that this could be achieved by greater efficiency in managing contracted services, rationalizing structures and reorganizing the company´s businesses, optimizing personnel costs and reducing expenditure on inputs.

Note that the company is subject to various risk factors that could adversely affect its cash flow projections, including:

— Fluctuations in market variables, such as oil prices and exchange rates;

— Divestment operations and other business restructuring plans, subject to market conditions prevailing as and when transactions are made;

— Achieving oil and natural gas production targets at a time when suppliers in Brazil are experiencing difficulties.

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