May 27, 2020
Petrobrás projects a gradual recovery in the price of oil over the next five years, until it returns to the level of US $ 50 per barrel – double the average price projected for this year, of US $ 25. As the scenario improves, it should also reduce the company’s debt, from $ 87 billion to $ 60 billion, according to the company’s president, Roberto Castello Branco, who yesterday reiterated the focus of new investments in the pre-salt layer.
According to him, the board evaluates the viable projects in this period of crisis. Some will be restructured to suit the lowest price per barrel (yesterday, the Brent type closed at $ 35 a barrel), others will be suspended and even canceled.
Amid the pandemic of the new coronavirus and the sharp drop in the price of the commodity, Petrobras reacted with a cut of US $ 3.5 billion in its annual investment budget, which went from US $ 12 billion to US $ 8.5 billion. With the work of revising the assets, the state company expects to define those that generate the most gains on the invested capital, have the least risks and, at the same time, are economically viable.
“There is a question of capital allocation. What do you prefer: investing in a pre-salt field that can generate a real return of around 15% or investing in a retail (fuel) operation, which gives a return on employed capital of 6% to 7%? Capital is scarce, ”said Castello Branco, in a virtual interview promoted by Genial Investimentos.
The company’s main asset today is the Búzios field, located in the Santos Basin pre-salt and acquired last year in the auction of surplus areas for the transfer of rights. This reservoir is complementary to another granted to the state company in 2010, shortly after the company discovered the pre-salt and announced its technical and economic viability. Búzios is the largest field ever discovered in the world. As well as this, large reservoirs, low risk and oil extraction cost close to US $ 3 per barrel should be prioritized.
The company has already announced the closure of at least 62 platforms in early April, with the justification that the economic return of the production where they are installed does not justify the continuity of the operation. Most are located in onshore fields, some of them already in decline, and in shallow waters. But there are also fields in the Campos Basin, on the coast of the State of Rio de Janeiro.
Many of these assets were already considered unfeasible by the company and had been included in the divestment program. But with the crisis, even with no buyers in sight, they were demobilized.
Also on the radar is the sale and, in some cases, the closing of subsidiaries, especially those considered inappropriate to the profile of the state-owned company – an oil company focused on the exploration and production of oil and gas, especially in the pre-salt. In February, the Araucária Nitrogenados fertilizer plant in Paraná was closed. The dismissal of hundreds of employees prompted a strike by the unions. The privatization of Petrobras was ruled out by Castello Branco.
“Comparing with other operators, Petrobrás was very strict in adjusting assets. I believe that this will be a justification for focusing on the pre-salt layer and reducing investments and expenses with employees. But, if the price recovers, as some scenarios point out, the company may reposition itself ”, says Luciano Losekann, a specialist in oil and natural gas and a professor at the Faculty of Economics at the Federal Fluminense University (UFF).
To overcome the current phase, the company is reducing costs and debt. Contracts are being renegotiated with suppliers, mainly with larger ones, who, according to Castello Branco, are better able to resist the crisis. The financial target for the year, related to the debt, “is impossible to be reached”, said the executive in the interview. Petrobras planned to end the year with the same level of commitment to pay creditors in 2019, of US $ 87 billion.
There is an expectation of resuming debt retraction measures at the beginning of next year, but this will depend on the global economic environment.