Fall in oil prices creates greater challenge for small and medium-sized oil companies

Apr 14, 2020

The oil price crisis, aggravated by the drop in demand due to the new coronavirus pandemic, forces large oil companies to cut costs, cut investments and concentrate efforts on more profitable assets. The scenario, however, is more complex for small and medium producers, who, in general, have fewer opportunities to reduce costs and increase productivity.

Among the large companies, for example, Petrobras determined a cut of US $ 2 billion in operating expenses and a reduction of 30% in the investments planned for this year, now totaling US $ 8.5 billion. And, since the beginning of this month, it has decreased its oil production by 200,000 barrels a day.

Just for comparison, the volume is equivalent to almost ten times the combined production of the companies Enauta, PetroRio and Dommo Energia (formerly OGX), smaller oil companies with shares traded on B3, according to data from the National Agency of Petroleum, Natural Gas and Biofuels (ANP).

It counts in favor of them having a leaner structure and more agility to adapt to new scenarios. The problem, however, in addition to the lack of scale, is the type of asset they manage. Petrobras, for example, may now focus on the pre-salt layer, where some wells can produce 40,000 barrels a day and the average extraction cost is only US $ 5.6 a barrel.

“The problem is not necessarily the size of the company, but the profile of the fields it has in its portfolio”, says José de Sá, an oil specialist and director of the consultancy Bain & Company in Rio. “If you are a company that has mature fields offshore [areas that have already reached peak production] you have to worry because they are among the most expensive ”.

With gas production in the Manati field, in Bahia, and oil in the Atlanta field, in the Santos Basin, Enauta adopted measures to maintain liquidity and reduce costs. According to the company, in a statement to the market, Brent’s volatility will be partly mitigated by a hedge previously contracted, with put options at an average of US $ 57 per barrel, equivalent to 35% and 16% of the production expected for the first and second semesters, respectively.

On another front, the company, which is in the initial stage of contracting the definitive production system in the Atlanta field, will already adapt the project to Brent’s new scenario, in an attempt to make it resilient to lower quotations.

The oil company says it has more than R $ 1.5 billion in net cash and believes it is well positioned. Therefore, it intends to maintain the investment plan.

PetroRio, in turn, revised the business plan and decided to postpone investments and reduce operating expenses. In this sense, it demobilized the third phase of the revitalization of the Polvo field, in the Campos Basin. In a statement, it said it hedged 100% of its production in January in the first quarter and 50% in the second quarter, with a floor of US $ 65 per barrel.

The picture, however, is more delicate for small oil companies operating in onshore fields. According to Marcelo Magalhães, vice president of the Brazilian Association of Independent Oil and Gas Producers (Abpip), Petrobras, the sole buyer of this production, applies a discount on the price of this oil, which further affects the financial viability of the business.

The entity sent a letter to the Ministry of Mines and Energy with proposals to help small producers. Among them are the application of royalties on the amount billed by Petrobras, instead of on the reference price, and the temporary reduction in the royalty rate.

“These two aspects, at least, are fundamental to guarantee the survival of our activity”, said Magalhães, to Valor.

In an internet broadcast, made by “ epbr”, an energy policy news agency, last week, the deputy executive secretary of the portfolio, Bruno Eustáquio, said that measures are being studied for the sector. “We are evaluating the impacts of easing the percentage of royalties for marginal fields and marginal accumulation, for example, in light of what is practiced today”.

Source: Valor Econômico


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