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Petrobras’ pre-salt focus pays off

Brazilian NOC’s commitment to the offshore province and portfolio overhaul is helping offset unstable commodity prices

Brazilian state-owned oil and gas company Petrobras is benefiting from its strategy of divesting non-core assets and prioritising crude production from the pre-salt region. The firm posted strong full-year financial results for 2019 despite global market volatility and the average price of the crude oil it sells falling 8.1pc year-on-year.

Petrobras’ focus on improving ‘value generation’ across its portfolio helped lift net income to $10.2bn last year—a 41.5pc increase over 2018. Divestment of assets—which includes biofuel-focused distributor BR Distribuidora, the domestic TAG gas pipeline, mature offshore Brazilian fields, distribution assets in Paraguay and in the US a Pasadena refinery—generated a total of $16.3bn.

The combined effect of these measures helped Petrobras pay debt down by $24bn to $87bn—a key priority since the fallout from the Lava Jato corruption scandal sent it spiralling above $100bn—and increase its market capitalisation by 25pc.

Making strides

Strong production growth in the pre-salt last year also helped vindicate Petrobras’ ongoing portfolio overhaul. The ramp-up of seven new systems in the region—and one in the post-salt—accelerated output growth contributed towards record daily production of 3.3mn bl/d and record monthly average production of 3.1mn bl/d. By December, the combined production from the eight new systems reached 870,000bl/d oe, with 540,000bl/d oe coming from four platforms at the Buzios field.

“Maintenance and base declines are a significant issue in the company’s poor 2020 production guidance” Ghulam, Raymond James

“We continue to focus on developing the pre-salt,” said Petrobras CFO Andrea Almeida on a earnings call 20 February. “We invested $10.7bn in 2019 and if we add the signing bonus [for last year’s bidding auctions] our total investment reached $27.4bn.”

Financial performance also benefited from dramatically lowered lifting costs in the pre-salt. “Petrobras reduced its lifting costs 12pc in 2019 and the increasing proportion of [output from the] pre-salt, which has lower lifting costs than other types of assets, played a huge role in the company’s mix,” says Muhammed Ghulam, senior associate at US bank Raymond James. Average lifting cost in the pre-salt now stands at c.$3/bl oe.

Going all out

The pre-salt makes up 59pc of all domestic crude production in Brazil and Petrobras’ long-term strategy will lead to this increasing over the next four years. Petrobras has either chartered or earmarked 12 new systems to start up at nine fields before 2025—a combined capacity of 1.6mn bl/d of oil and 92.5mn m³/d of gas. This will help replace barrels from maturing shallow water or onshore fields, many of which are in any case being offloaded.

Petrobras is scheduled to start-up a new platform in the first half of the year at its Atapu field—one of four included in November’s landmark Transfer of Rights (ToR) Surplus bidding round but failed to receive any bids. Petrobras already operated the field as part of its original 5bn bl deal in the ToR area. The platform will have capacity of 150,000bl/d of oil and 6mn m³/d of gas.

Short-term holdup

Petrobras expects production growth to essentially remain flat for the rest of the year. While it achieved total production of 2.77mn bl/d in 2019—against a target of 2.7mn bl/d—its ambition remains unchanged. Scheduled maintenance in the pre-salt is forecast to impact any potential upstream growth.

“The ramp up of new pre-salt platforms resulted in a significant increase in Petrobras’ production in 2019 and will continue to have a positive impact in 2020,” says Ghulam. “However, maintenance and base declines are a significant issue in the company’s poor 2020 production guidance.”

$10.2bn Net income 2019

Later this year, Brazil may again try to offload the ToR Surplus volumes which failed to attract bidders last year—largely the result of high signing bonuses and complex concession regimes. Petrobras succeeded in acquiring a 100pc stake in the Itapu field, together with a 90pc share of Buzios—in consortium with Chinese firm Cnooc (5pc) and a subsidiary of fellow Chinese CNPC (5pc).

But further participation in a future ToR Surplus bidding auction looks unlikely. Petrobras exercised its pre-emptive right on Buzios and Itapu before the auction and is concentrating primarily on Buzios. “Petrobras made an important capital allocation by winning at very attractive terms the auction for the ToR Surplus volume in Buzios, the world’s largest offshore field discovered to date, a low risk and high quality pre-salt asset,” says Regis Cardoso, lead analyst of Latam oil and gas at Swiss bank Credit Suisse.

Four floating production and storage vessels have already been deployed at the field over the last 11 months, with another planned for 2023. 

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