Difficult scenario for Petrobras and Brazil’s oil production to 2020- report

Marred by corruption and market turmoil, Petrobras, the operator of key pre-salt projects for Brazil’s oil production over the next five years, is one of many Brazilian oil and gas companies facing a difficult financial future in the short term, according to an analyst with research and consulting firm GlobalData.

Adrian Lara, GlobalData’s Senior Upstream Analyst covering the Americas, says that production from pre-salt fields will contribute an estimated 65% of Brazil’s oil production by 2020, while there are 11.6 billion barrels of recoverable reserves from planned pre-salt projects.

This production depends on timely deployment of Floating Production Storage and Offloadings (FPSOs), pace and number of wells drilled, and productivity of the pre-salt wells. However, the fact that Petrobras is more than US$100 billion in debt makes growth prospects very slim.

Lara elaborates: “Petrobras has seen its capital investment and production forecast negatively impacted by the carwash corruption scandal, one of the largest cases of fraud in the history of oil and gas. Consequently, it has been forced to delay its development plans and has proposed budget cuts for the next two years.”

The analyst adds that Petrobras’s recent revisions to its production plans, forecasting 2.8 million barrels per day (mmbd) by 2020, 1.4 mmbd less than 2014, will be adjusted further. This is due to more recent Petrobras CEO statements indicating less capital expenditure and a larger divestment strategy. One key change in the investment plan for pre-salt production has been a significant reduction in the number of FPSOs brought online by 2019.

Lara says that developing pre-salt assets remains vital in providing much-needed cash flow for Petrobras. However, most of these require significant additional investment, which will be hard to find considering the company’s current position.

Although Petrobras rejected the idea of partnering with other operators in developing pre-salt resources, recent debates and announcements in the media, congress and statements from the ministry of finance and Petrobras’ CEO indicate that a discussion about changing these conditions might be feasible.

Lara concludes: “Diminishing the local industry role and Petrobras’s leadership in the development of the pre-salt resources in favour of foreign oil and gas companies would certainly face opposition from workers' unions and require substantial negotiation between key political parties. However, this might be the necessary trade-off to create the potential production growth from pre-salt areas.”