Petrobras should reduce investment by US $ 20.9 billion in new 5-year plan, says research

Petrobras should reduce investment by US $ 20.9 billion in new 5-year plan, says research

Petrobras should reduce by 20.9 billion dollars investment projection in the Business and Management Plan for the next five years, in a document that promises to be more aligned with the financial market, bringing greater transparency and revealing a leaner company and realist.

The business plan, expected early next week, should point investments of U$ 77.5 billion by 2021, down 21 percent from the previous five-year plan, published in January, according to the average Reuters poll of four banks.

The reduction in investments is even greater when compared to the business plan of 2014 of U$ 220.6 billion in five years, when the company had not yet reported losses worth billions by the corruption scandal and oil prices were higher.

For experts, there is still room for further reductions, since the company remains renegotiating contracts and reducing costs in the face of oil prices, whose values have fallen by half since 2014.

“The new five-year business plan is the most important trigger in the short term … if strong enough, it will help to continue to support the positive dynamics of Petrobras’s shares on the stock market,” said Diego Mendes, Itaú BBA analyst, in a note to clients.

Mendes believes that Petrobras will invest on average 15 billion dollars a year. Santander already estimated annual contributions of 12 billion to 14 billion dollars by 2021, while Brazil Plural foresees investments of 18 billion to 20 billion dollars / year, and Bradesco, about 15 billion per year.

PRODUCTION

Despite the decline of investments, profound impacts on production are not expected in the short term, since much of the extraction is already contracted.

However, Christian Audi, Santander analyst explained, the curve to be presented by the company should be more realistic.

“A more conservative target might be presented, reflecting a lower production growth in 2017 (as part of this production is already contracted) and getting steady growth between 2018 and 2021,” said Audi.

LONG-TERM STRATEGY

In addition to the 2017-2921 Business and Management Plan, the company will also publish a new strategic plan, in which the market and the industry expect answers on what the company wants to be and what exactly is her business, after facing a financial crisis and billionaire divestments.

“Petrobras was a black box, full of huge surprises, and now it promises to be a more transparent, more predictable company,” said Roberto Castello Branco, former CFO of Vale and director of Petrobras in 2015 .

The company has broken paradigms to sell its share in the discovery of Caracara in the pre-salt Santos Basin, and accepting share control of BR Distribuidora, he said. Now the market expects the company to be more and more predictable.

The divestment plan is seen as a key factor for the future of the company, experts polled by Reuters.

Besides being necessary to reduce the large leverage, it will define the company’s profile in the future, after disposing of various businesses.

The market believes that if done in an organized manner, the sales of planned assets can add much value.

“I think for the first time Petrobras is thinking like other international oil companies, which is to make annual plans and divestitures … is the nature of this business,” said Helder Queiroz, former head of the regulatory agency for the oil industry ( ANP) and professor and member of the Energy Economics Group of the Institute of Economics of UFRJ.

According to Queiroz, a revaluation of assets often is necessary for the company to be always well positioned.

The current Petrobras disinvestment plan provides for the sale of 15.1 billion dollars between 2015 and 2016, of which $ 4.5 billion were completed, according to calculations by Brazil Plural. Analysts expect new sales targets assets.

SENSITIVE POINT

In addition to asset sales, another sensitive point of the plan is the fuel pricing policy. Historically, Petrobras claims that follows international values, but without market volatility.

However, even the new management, which presents itself as more transparent, has not yet explained the process  to the market how administered fuel prices will be more predictable, which is a great demand in the industry.

Caio Carvalhal, an analyst at Brazil Plural, said that if the pricing was a major factor for the increase of the company’s leverage, between 2011 and 2015, can also help in difficult times, like now, where the company sells products with prize at the international market.

“The lack of a clear pricing policy harms the proper modeling of the company, increasing the unpredictability of the gains,” said Carvalhal.

Reuters