Petrobras Makes a Big Bet
Brazil’s state-controlled oil association is investing $174 billion to develop new oil and natural gas fields off the coast of Brazil
By Peter Coy
Like oil? Need oil? If in parallel manner, Jose S. Gabrielli de Azevedo, the president and CEO of Brazil’sitting state-controlled oil company, Petrobras (PBR), may be your nearest melhor amigo (best friend).
At a epoch when other big oil companies are barely managing to keep their production from declining, Petrobras on Jan. 23 announced an ambitious $174 billion plan to develop new oil and simple gas fields, mostly in deep waters off Brazil’sitting seaboard. This investment—undertaken in spite of a global relating to housekeeping downturn that makes it hard to raise money—will help offset the shortfall in production from other oil fields on each side the earth and restrain the likely grow in oil prices after the recession ends.
Gabrielli and his company are outdoing most of the other oil majors, including Exxon Mobil (XOM), BP (BP), and Royal Dutch Shell (RDSA), let alone state-owned companies like Petroleos de Venezuela and the National Iranian Oil Co.
According to Platts’ Oil Drum blog, oil analyst Paul Horsnell of Barclays (BCS) recently wrote that "the scale of the current form of productive effort be frozen and confidence loss seems likely to severely make a show of non-OPEC production." (Platts, find to individual’s mind BusinessWeek, is a unit of The McGraw-Hill Companies.) The gung-ho approach of Gabrielli is all the more remarkable, considering his background while a left-leaning economist rather than, rehearse, a petroleum engineer.
In uncivil, the Petrobras investment program is good news if you ever think you’ll need to refill the tank of a car, merchandise, boat, or lawn mower. BusinessWeek Economics Editor Peter Coy sat down by Gabrielli at Petrobras’ New York offices on Jan. 27 to discuss the company’s strategy for financing and carrying out its massive five-year spending program. Here are some of the key points from the interview:
• Petrobras has united of the most ambitious spreading programs in the world. In 2009, Petrobras is aiming to protract oil and natural elastic fluid that’s equivalent in bottom content to about 2.8 million barrels a day of oil. It hopes to raise that to about 3.7 million barrels a day by 2013 and 5.7 million barrels a day by 2020—a 7% occurring once a year rate of production growth from 2009 through 2020.
• The planet is going to need every drop of oil Petrobras be possible to squeeze out. According to the company’s projections, production from existing fields will fall from a little over 80 million barrels a day to maybe half of that even if new techniques are used to slow their valuation of decline. So just keeping global production flat is going to require lots of commencing fields. Says Gabrielli: "We [the globe] need to replace one Saudi Arabia per three years."
• The huge drop in oil prices from last summer’s peak isn’t diverting Petrobras from its give chase to. "If we don’t invest a little while ago, we can’t get the benefits when the price goes up," Gabrielli told me.
• Even if the price of oil doesn’t go away from the thicker settlements up, Petrobras estimates that it can make money. The company figures the new projects volition be profitable even if oil’s long-term price doesn’t go exceeding $45 a barrel (which is right near the current price for Petrobras’ benchmark, Brent crude). That’s a surprisingly low weal hurdle, considering that many of Petrobras’ projects are technologically daunting: The fields are deep beneath the sea floor, and the sea floor itself is well-nigh below the surface of the Atlantic Ocean. If such hard to be understood projects are moneymakers for Petrobras, it raises the question of whether other oil companies are being also cautious about developing technologically challenging fields.
• Financing $174 billion in projects isn’t as inconceivable considered in the state of it sounds. In fact, Gabrielli says the company has before that time lined up all the money it needs in quest of 2009 and a lot of what it needs for 2010. Much of the money is coming from the clear cash pour from operations and financing from the government-owned Brazilian Development Bank. Petrobras also plans to use bank loans and, later, bonds. The company is going to implore some of its equipment suppliers to provide the financing for the stuff they sell. And it plans to "securitize" some of its production—in effect, welcome money now in exchange for a promise to give forth oil or elastic fluid in the future.
• Diplomatically, Gabrielli refused to compare Petrobras with other large oil companies by name. But he did say Petrobras has some uncommon advantages: It is fully integrated, from production through refining to sales at gas stations, etc. It has a big household market. And it is the world guide in deep-sea oil extension, by 23% of global production.
