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Petrobras targeting supermajor status

Petrobras continues to defy gravity by maintaining its large investment programme, but must source large numbers of skilled workers to advance its expansion plans, writes Robert Olson

NEVER short on ambition, Petrobras maintained its bold spending and growth plans last year, despite the financial crisis. It even expanded into new businesses. This year calls for more of the same, with the added task of assuming a much more dominant role in Brazil's pre-salt oil sector, where large discoveries could transform the country into a much larger oil supplier.

State-controlled Petrobras' rapidly growing oil and gas production has already propelled it comfortably into the second tier of international oil companies (IOCs), alongside Chevron, ConocoPhillips and Total. And while some observers remain cautious about the profitability of the pre-salt oil discoveries, such as the Tupi field, Petrobras remains bullish about the field's prospects; further analysis of the area confirms the initial claims about its likely reserves of 5bn-8bn barrels, the firm says.

As a result, Petrobras expects its worldwide oil and gas production to rise at an average annual rate of 8.8% between now and 2013 – growth that could quickly put it in the league of the supermajors. By 2013, Petrobras expects to be pumping 2.68m barrels a day (b/d) of oil in Brazil, a figure that would probably take it past Venezuela's PdV and Mexico's Pemex (see p7), making it Latin America's biggest oil producer.

The company came close to achieving its goal of raising Brazilian oil production to 2.05m b/d last year, falling short only because of minor delays in starting up some wells, it says. Petrobras' big test will come in 2013 when four large projects are due on stream, including three new production facilities in its traditional deep-water areas with a combined production capacity of 430,000 b/d and a 100,000 b/d pilot project at its pre-salt Guará prospect.

But there are two main risks: obtaining sufficient funding for development of the pre-salt discoveries; and recruiting enough manpower. The company's shrewd fundraising last year and its solid financial performance suggest the first is under control. There are greater uncertainties surrounding the second – a problem shared across the industry.

Petrobras plans to spend $174.4bn between 2009 and 2013, and has shown its resourcefulness at raising funds. Last year, it borrowed $10bn from China that can be repaid with oil shipments. In total, it borrowed $34.8bn last year to fund its growth plan, refinance existing debt and stockpile cash to protect itself from unexpected disruptions in the global financial system.

The government is also strengthening Petrobras by transferring the rights to 5bn barrels of oil to the firm in exchange for new shares. Other shareholders will also be given the right to buy new stock, which Petrobras says could raise up to $30bn. Its earnings also remain strong. Net profit fell by 5.6% in the third quarter of 2009 compared with the same period a year earlier, but at $4.24bn surpassed analysts' expectations, as higher production volumes offset lower oil and gas prices.

Petrobras is also keeping costs under control. It was able to reduce by more than 10% the proposed day rate for the 100,000 b/d floating storage, production and offloading unit it plans to install at Guará in 2013 and is using its negotiating power with other suppliers to achieve similar cost reductions.

On staffing, Petrobras also looks to be doing well. The company has added more than 27,000 employees since 2002. Projections for significant growth in the workforce at Petrobras, and in the Brazilian oil industry in general, appear to have spurred more funding for training programmes. The government's determination to turn its services sector into a world leader by steering much of the pre-salt work in its direction is adding pressure to workforce needs, however. Petrobras expects its suppliers will need more than 112,000 workers in the coming years and overall workforce needs could be as much as 240,000 people.

Executives are confident Petrobras is up to the task. The company aims to become one of the five biggest publicly traded oil and gas producers by 2020; it is already spending more than most of the IOCs on research and development; and managers are focusing on cost discipline at the pre-salt fields through standardised production facilities and has placed an emphasis on completing as much detailed engineering as possible before beginning large projects. Heavy investment in training personnel is also beginning to pay off, allowing the company to keep increasing staffing levels.

Yet Petrobras will be a supermajor like no other. While ExxonMobil, BP and Shell roam the world looking for reserves, Petrobras will be mainly focused on Brazil, with international interests confined to its areas of strength, such as deep water. And while its competitors struggle to gain access to reserves, Petrobras will be given a free hand in Brazil where the government will soon transform it into the monopoly operator of all new pre-salt blocks (PE 10/09 p4).

Under proposed legislation the company will take on a more traditional national oil company role with a mandatory stake in every new project in the pre-salt areas. And while no-one expects the company to become another Pemex, its new politically sensitive position could slow down the development of the pre-salt areas. Some potential partners are concerned that Petrobras, notwithstanding its technical expertise, may struggle to meet the challenge of operating every field in the extensive pre-salt area.

IOCs were braced for the government to increase the state's take from the fields and had hoped Petrobras would not be given such a privileged role. But with access to acreage still difficult elsewhere, IOCs are likely to maintain their interest in Brazilian investment.

Legislation making its way through congress is set to transform the country's oil sector, dropping a concession system that was designed to attract investors when prospects were unclear, in favour of production-sharing agreements aimed at maximising oil rents. While existing areas will not be affected by the legal overhaul, some 70% of the pre-salt area remain unlicensed and subject to the new rules. Under the proposal, Petrobras gains a privileged role, winning an automatic 30% stake in any new licence, as well as the operatorship of the field.

Licences will be awarded to companies that offer the biggest stake in the contract to the state. A new state-owned company, tentatively known as Petro-Sal, will hold the state's interest in the field and control the operating committee, giving the government the right of veto over any commercial decisions. The government also reserves the right to award licences directly to Petrobras, which presumably means the most attractive areas may not be made available in licensing rounds.

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