Petrobras Business Plan – Crystal Ball Market Predictions

The cut in Petrobras’s investment plan for the period 2015 to 2019 will be close to 40%, with the new budget around $ 130 billion, says real time service agency Broadcast. Last year, when the company was still chaired by Graça Foster, the investment goal was $ 220.4 billion in five years. But, given the financial difficulties of the company and industry, the new management chose to adopt a drastic reduction of the budget in line with what the market expected.

The proposal will be reviewed by the board on Friday, but it is possible that the board will not come to a conclusion and the release of the amount be delayed to another date. A cut of 30% to 40% would help the company improve its financial situation with a short-term impact. It would be the main signal to resume market credibility, as a small cut would impact negatively on the credit rating of the company. With less investment, the company also reduces the potential for future revenues.

The proposed cuts have met with resistance from the union representatives of workers, threatening to go on strike and stop production if the cuts and asset sales are so large that, according to them, would be a “disguised privatization” of the company. The decision will be taken today at a meeting in the CUT headquarters in Rio.

In an attempt to overcome the resistance, the board began a series of meetings last week with the unions to argue about the need for cuts, including personnel, which are mainly outsourced. The argument is that with lack of money there is no choice but to shrink Petrobras. The company priority will be performance in exploration and production of oil and natural gas. In recent years, Petrobras gains came with debt growth. So the order now is to nip it in the bud and strengthen the cash flow, so that in the next two or three years, the company can afford to expand investments.

The business plan brings pessimistic projections for the dollar and the international oil prices, which only hinder the execution of the company’s projects. The more valuable the dollar against the real, the more the company spends to import fuels. At the same time, the lower the price per barrel the company’s assets are worth less.

Petrobras will focus on exploration and production activities and abandon supply projects. Some areas of exploration and production will also be offered to the market. The company will focus on the pre-salt, where the cost of extraction is now lower than in other reserves and therefore is more profitable, even in low oil price periods.