Brazil’s heavily indebted state-led oil company Petrobras will likely cut planned investment by about a sixth and its 2020 output goal by 14 percent under a five-year strategic plan that could be released as early as Monday after markets close, according to analysts.
Petroleo Brasileiro SA, as the company is formally known, is expected to announce a 2017-2021 capital budget of $82.7 billion, or an average of $16.6 billion a year, according to the average estimate of eight analysts surveyed by Reuters.
That would be Petrobras’ smallest five-year capital budget since 2006 and 16 percent less than the Rio de Janeiro-based company’s 2015-2019 plan revised in January.
The cuts would be part of Chief Executive Officer Pedro Parente’s fight to curb the company’s nearly $125 billion of debt, the largest in the world oil industry, and focus spending on crude oil exploration and production needed to pay it.
Parente’s efforts are complicated by oil prices at some of their lowest levels in a decade, a corruption scandal that has undermined investor confidence and huge losses on money-losing refineries and domestic fuel subsidies.
Petrobras’ said last week that its board of directors on Monday would “appreciate” the plan, under development since June. If approved, Petrobras is expected to release the plan immediately.
“This plan is very important for setting expectations at a company that has consistently missed expectations,” said Luana Sigfried, oil and gas analyst with Raymond James in Houston. “The company will have to cut enough to show it’s being realistic, but not so much that its future output falls too far.”
When combined with a promise to sell $15 billion of oilfields, pipelines and other assets by year-end and $43 billion through 2018, Parente said he hopes the plan will focus cash on the company’s portfolio of giant offshore oil discoveries south of Rio de Janeiro.
Petrobras’ controlling shareholder, the Brazilian government, is also counting on those fields to kick-start Brazil’s recession-mired economy. Petrobras is responsible for about 10 percent of Brazil’s gross domestic product.
The plan will also show how far Parente, appointed by new President Michel Temer, is prepared to go to let the company reverse the policies of former Brazilian President Dilma Rousseff, removed from office for breaking budget laws in August.
A former Petrobras board chairwoman, she built up Petrobras during a commodities boom only to see her plans unravel along with nearly $250 billion of shareholder value.
“The new five-year business plan is the most important trigger in the short term,” said Diego Mendes, analyst at Banco Itau BBA in Sao Paulo in a note to clients. “If the plan is sufficiently robust it will help sustain the positive dynamic for Petrobras shares.”
Petrobras’ preferred shares, its most traded class of stock, have risen 96 percent so far this year.
Lower spending, though, will also cut future crude output in Brazil to about 2.32 million barrels a day (bpd), according to the average estimate of six analysts surveyed by Reuters. That’s 14 percent below the company’s current 2020 outlook of 2.70 million bpd.
In 2012, before the corruption scandal, cash crunch and oil price plunge, Petrobras said it planned to produce 4.9 million bpd in Brazil in 2020. At the time Petrobras was investing more than $45 billion a year.
Some analysts also expect Petrobras’ to cut asset sale plans after success in refinancing short-term debt and after a strengthening Brazilian currency reduced the cost of Petrobras debt, most of it in dollars.
“It is our view that they would likely lower (asset sale) goals as the urgency for selling assets has decreased,” Mendes said a note to clients.