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Petrobras set fair despite global storm clouds

Petrobras chief executive Jose Sergio Gabrielli shrugged off talk that global economic uncertainty could derail the company’s ambitious plans to develop Brazil’s pre-salt play, saying the slowdown in the Brazilian firm’s investment programme had nothing to do with macroeconomics

Speaking on the sidelines of the Oil and Money Conference in London, Gabrielli said that while Petrobras’s investment this year was marginally less than planned, this was a result of delays in new-build rig deliveries, not economic jitters, or Brazil’s new local content rules.

“[The slowdown] has to do with delays in deliveries of new rigs that were 100% internationally made. It has nothing to do with local content. And the [financial] crisis is affecting foreigners more than Brazilians,” he said. But he did admit that there have been “some delays in some projects”.

Gabrielli added: “Really, we have slowed down the growth of the investment, not the investment itself. This has nothing to do with macroeconomics, it is a question of project execution.”

Earlier this year, Petrobras unveiled a $224.7 billion, five-year investment plan (PE 9/11 p9). Most of the money will be channelled into pre-salt development, including a massive rig-building programme. To meet its pre-salt production plans (PE 9/11 p10), Petrobras has ordered 65 deep-water units, all of which will be operational by 2020. Of the 65 rigs, 39 are scheduled to be working in Brazilian waters by 2014. So far, it has taken delivery of just 15.

Bullish Barbassa

Petrobras’s chief financial officer, Almir Barbassa, was as bullish as Gabrielli. “This is a long-term project,” he said. “We are developing fields that will produce from 2016 onwards. We will be producing beyond this crisis, although [if there is a deep recession] it could affect our liquidity. But we are well set for growth.”

Petrobras aims to produce 6.9 million barrels of oil equivalent a day (boe/d) by 2020, of which 4.9 million boe/d will be oil. Both Gabrielli and Barbassa held firm to the company’s previously stated breakeven cost of $45 a barrel, a figure that includes capital costs.

Barbassa added that, following its three successful tranches of equity-raising (including last year’s record-breaking $78.2 billion share sale (PE 11/10 p36), the company – which is understood to need a further $30 billion to $40 billion to fund its development plans to 2020 – did not need to return to the markets in the foreseeable future.

In August, Barbassa said the state-controlled firm was considering bond issues. “We are looking at raising between $7 billion and $12 billion through debt … with the international capital markets as the largest source. There is greater liquidity; they have deeper pockets,” he said at the time, adding that sterling or euro-denominated bonds were likely options.

But that plan appears to have been shelved, for now at least. “We are looking and seeing what is going to happen to the market,” said Barbassa. “The US dollar seems to be open, but the euro market is of more concern.

“We have good alternatives, but we are not mute to going to the market. And we have enough room to wait. If there is a good window, we may choose to [take that option],” he said, adding: “I must stress that the markets are frightened of sovereign debt, not corporate debt.”

A gas dilemma

Meanwhile, Gabrielli refused to be drawn on whether Petrobras would opt for a floating liquefied natural gas (FLNG) solution to develop Brazil’s pre-salt natural gas resources. “We have three very good designs that we tested on a technological basis and approved. Commercial proposals are now being finished and at least two are very attractive. We will soon decide when and how [to monetise pre-salt gas].” Technip, SBM Offshore and Saipem submitted the FLNG proposals.

Gabrielli added that with an extra 20 million cubic metres a day of gas-transport capacity due on line at the end of 2014, once a pipeline from the pre-salt to Rio de Janeiro comes on line, no further development – whether pipeline or FLNG – would occur until after 2015.

But he said gas development posed a dilemma. Brazil’s domestic petrochemicals demand is rising and Petrobras aims to boost its domestic refining capacity substantially to capture a larger share of the market. “The reason we should decide on a pipeline is that we have rich gas and it is better to separate it and use the heavier portion for petrochemicals,” he said. “But FLNG is a much more flexible utilisation of gas.”

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