Brazilian state-run energy company Petroleo Brasileiro S.A. or Petrobras PBR has slashed its five-year plan in a bid to tackle its huge debt burden and the repercussions of the money-laundering scandal.
For the 2015–19 period, the company plans investment of $130.3 billion, 41% lower than its previous five-year plan. This also marks the lowest investment level by the company since 2008.
Petrobras announced that about 83% of the proposed spending – $108.6 billion – will be allocated for its upstream segment. Notably, downstream capital spending has fallen to just $12.8 billion, a 67% decline from last year’s budget.
The energy firm announced that the new investment plan will focus on exploration and production activities in the pre-salt area of Brazil.
Petrobras’ surging capital spending over the past few years had been called unfeasible by several analysts. The current plan by the world’s most indebted company is being considered to be a more realistic one.
Petrobras has also reduced its worldwide production projection for 2020 to 3.7 million barrels of oil and equivalent a day (boepd) from the previous guidance of 5.3 million boepd.
Also, the company now projects Brent crude at $60 per barrel in 2015 and $70 per barrel next year through 2019. This compares unfavorably with Petrobras’ earlier long-term guidance of $95 per barrel.
Additionally, Petrobras announced divestment plans worth $15.1 billion in 2015–16 (up from prior estimate of $13.7 billion) and $42.6 billion in 2017–18. The company’s divestment plan for 2015–16 is divided as 30% from E&P, 30% from Downstream and remaining 40% from Gas & Power.
The decrease in investments and an increase in divestments remain the primary road open for the company to tackle its problems. The company’s involvement in a massive corruption scandal has scarred its credit metrics, which in turn, has been making the reception of funds from the market difficult. Also, the reduced production projection will likely keep financials challenged for the firm and near-term recovery remains doubtful.
Following the announcement, NYSE-listed ADRs of the company fell about 4.6%, reversing the gain following the subsalt rule change announcement. A drop in crude prices also led to the decline in stock price.
Currently, Petrobras carries a Zacks Rank #3 (Hold).
Better-ranked players from the broader energy space include QEP Resources, Inc. QEP, Suncor Energy Inc. SU and NuStar Energy L.P. NS. All these stocks sport a Zacks Rank #1 (Strong Buy).
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