Brazilian oil company bares new oil investment plan

Petrobras, an oil company that is 64% owned by the government of Brazil, has recently presented its new energy program for the period 2012 to 2016. The oil company had scaled down initial oil and gas production estimates due to rising costs of offshore exploration. Under the new program, projected output is 5.7 million barrels per day (bpd) of oil equivalent.

For 2020, Petrobas cut its daily output by 0.7 million barrels. Assuming a $96.97 price per barrel of Brent crude, the cut would mean estimated $25 billion foregone earnings per annum.

Brazilian Infrastructure Institute Head, Adriano Pires, commented that the new program appears more realistic than previous ones drafted by Petrobras. Industry experts, however, raised concerns that the oil firm is being manipulated to satisfy the political whims of current head of state Dilma Rousseff.

Experts also noted that the program’s projected expenditures appear impractical, calling instead for a more realistic and well-defined energy program that is not marred by politics.

The new program was presented by Maria das Gracas Foster, who is said to be closely identified with Rousseff.

According to Petrobras officials, the program focuses on investing in oil exploration rather than on its oil refining businesses. Also, the general direction is to concentrate more on profitable ventures.

The company plans to hold meetings with various investors to discuss the new program. Meetings will kick-off June 25.

Some sectors are disappointed by Petrobras’ dwindling output despite increasing oil investment from the private sector while company expenditures reached a hefty $20 million per day – the highest spending so far. February output declined to 2.70 million bpd of oil equivalent.

The company disclosed that it will not substantially invest in oil businesses that are not as lucrative and that there won’t be significant growth in crude oil and gas production within the next two years.

Despite this forecast, Brazil will remain competitive and will continue to hold its status as one of the world’s four major oil producers (in 2020) along with oil giants Saudi Arabia, U.S., and Russia.

Santander Investment Securities Analyst Christian Audi thinks Foster’s program seems practical and forsees that, under Foster’s wing, the company could attain more realistic output goals in the years ahead.

Still other analysts remain skeptical, saying that having a practical approach does not guarantee brighter prospects for the oil company.

As Petrobras’ program was presented, the company also came out with a message to clients indicating that “Taken together, the higher capital spending and lower production targets appear to be negative.”