HOUSTON – Petrobras’ strict focus on capital discipline and portfolio rationalization in recent years has improved its financial condition, and this should continue into the next decade, according to a report by IHS Markit.
The company started implementing measures to achieve greater financial stability in 2015, and its latest strategic business plan includes further asset sales and asset rationalization, and continued restraints on capital spending between 2019 and 2023.
Petrobras was forced to take action due to the fall-out of the oil price crash from the second half of 2014, and the huge debt the company had built up after years of overspending cashflows to fulfil corporate investment objectives in Brazil and elsewhere.
Another factor was a major corruption scandal which had a severe impact both on the company’s finances and investor trust.
The subsequent asset divestments have allowed the company to focus on key growth projects in the presalt, such as the Búzios field. IHS has identified other assets that could be candidates for divestment.
The latest strategic plans, announced last December, include a focus on portfolio rationalization, presalt volume growth, and debt reduction. In the upstream, the company will most likely offer producing shallow-water and onshore assets.
Petrobras’ expects total capital investments during 2019-23 of more than $84 billion, of which 82% will be dedicated to exploration and production.
This is around 13% higher than the 2018 to 2022 business plan capex of $74.5 billion and according to IHS is an indication of the company’s comfort level now in lifting spending to increase production.
But it also represents a 65% decline from the company’s peak capital spending of nearly $238 billion in the 2013-2017 plan. At peak, Petrobras was averaging capex of more than $40 billion annually: after including dividends, it was outspending cash flows by nearly two times.
Much of the outlay was on the downstream, which, at the time, was racking up major losses due to the impact of regulated retail product prices in Brazil.
Since 2015, Petrobras has reduced its capital budget investments by a compound annual rate of 5% per year, with 2019 capex set to be 61% lower than in 2013 and 14% lower than in 2015.
These measures have allowed the company to reduce its debt from of $106 billion in 2014 to $69 billion at year-end 2018. IHS expects its net debt to continue to decline to $55 billion in the 2020s.
Since 2015, Petrobras has also announced asset deals bringing in more than $17 billion, much of it allocated to reducing debt.