• 11 hours Iraq Begins To Rebuild Largest Refinery
  • 15 hours Canadian Producers Struggle To Find Transport Oil Cargo
  • 17 hours Venezuela’s PDVSA Makes $539M Interest Payments On Bonds
  • 18 hours China's CNPC Considers Taking Over South Pars Gas Field
  • 20 hours BP To Invest $200 Million In Solar
  • 21 hours Tesla Opens New Showroom In NYC
  • 22 hours Petrobras CEO Hints At New Partner In Oil-Rich Campos Basin
  • 24 hours Venezuela Sells Oil Refinery Stake To Cuba
  • 1 day Tesla Is “Headed For A Brick Wall”
  • 1 day Norwegian Pension Fund Set to Divest From Oil Sands and Coal Ventures
  • 2 days IEA: “2018 Might Not Be Quite So Happy For OPEC Producers”
  • 2 days Goldman Bullish On Oil Markets
  • 2 days OPEC Member Nigeria To Issue Africa’s First Sovereign Green Bond
  • 2 days Nigeria To Spend $1B Of Oil Money Fighting Boko Haram
  • 2 days Syria Aims To Begin Offshore Gas Exploration In 2019
  • 2 days Australian Watchdog Blocks BP Fuel Station Acquisition
  • 2 days Colombia Boosts Oil & Gas Investment
  • 2 days Environmentalists Rev Up Anti-Keystone XL Angst Amongst Landowners
  • 3 days Venezuelan Default Swap Bonds At 19.25 Cents On The Dollar
  • 3 days Aramco On The Hunt For IPO Global Coordinators
  • 3 days ADNOC Distribution Jumps 16% At Market Debut In UAE
  • 3 days India Feels the Pinch As Oil Prices Rise
  • 3 days Aramco Announces $40 Billion Investment Program
  • 3 days Top Insurer Axa To Exit Oil Sands
  • 4 days API Reports Huge Crude Draw
  • 4 days Venezuela “Can’t Even Write A Check For $21.5M Dollars.”
  • 4 days EIA Lowers 2018 Oil Demand Growth Estimates By 40,000 Bpd
  • 4 days Trump Set To Open Atlantic Coast To Oil, Gas Drilling
  • 4 days Norway’s Oil And Gas Investment To Drop For Fourth Consecutive Year
  • 4 days Saudis Plan To Hike Gasoline Prices By 80% In January
  • 4 days Exxon To Start Reporting On Climate Change Effect
  • 4 days US Geological Survey To Reevaluate Bakken Oil Reserves
  • 5 days Brazil Cuts Local Content Requirements to Attract Oil Investors
  • 5 days Forties Pipeline Could Remain Shuttered For Weeks
  • 5 days Desjardins Ends Energy Loan Moratorium
  • 5 days ADNOC Distribution IPO Valuation Could Be Lesson For Aramco
  • 5 days Russia May Turn To Cryptocurrencies For Oil Trade
  • 5 days Iraq-Iran Oil Swap Deal To Run For 1 Year
  • 7 days Venezuelan Crude Exports To U.S. Fall To 15-year Lows
  • 8 days Mexico Blames Brazil For Failing Auction

Breaking News:

Iraq Begins To Rebuild Largest Refinery

Nick Cunningham

Nick Cunningham

Nick Cunningham is a freelance writer on oil and gas, renewable energy, climate change, energy policy and geopolitics. He is based in Pittsburgh, PA.

More Info

When Will Petrobras’ Fire Sale Start?

When Will Petrobras’ Fire Sale Start?

The economic instability in China has raised concerns about the global economy, but the pain is already being acutely felt in Brazil, where economic success over the past decade was largely built on exporting commodities and natural resources to China.

The sudden slowdown in demand for commodities in China has hit Brazil hard. About 20 percent of Brazil’s main stock index, the Sao Paulo Stock Exchange, or Ibovespa, consists of commodity producers. Thus the collapse of commodity prices has crushed Brazil’s stock exchange, which is down by about one-third since last May.

“Prospects for Brazilian stocks are discouraging in every way,” Hersz Ferman, an economist at Rio de Janeiro-based brokerage Elite Corretora, told Bloomberg on January 11. "There are many uncertainties regarding both the internal and the external scenarios." Brazil is facing its worst recession since 1901 and GDP could shrink by 3 percent in 2016.

Nobody has been harder hit than Petrobras, Brazil’s state-owned oil company. The company has a long list of problems. It has failed to reach ambitious production targets set years ago. It has more debt than any other oil company in the world. It is suffering from low oil prices. It is also a shadow of its former self because of the massive corruption scandal that has bogged it down for more than a year. Related: Saudi Aramco IPO More About Geopolitics Than Finance

Petrobras’ shares listed on the New York Stock Exchange are down by 70 percent since May 2015, and they are down about 95 percent since hitting a peak in 2008.

The damage to the Petrobras’ financial performance is clear. But that, in turn, is severely cutting into the company’s long-term ability to produce oil and gas. On January 12, Petrobras once again revised its five-year oil production plan down.

The 2015-2019 plan now calls for just $98.4 billion in capital expenditures, down by $32 billion, or about 25 percent, from the original plan released last year. Years ago, when things were going swimmingly for Petrobras, its five-year spending plans routinely topped $200 billion.

The substantial spending cuts will translate into a much more modest 2020 oil production target. Petrobras now thinks it will be able to produce 2.7 million barrels per day (mb/d) by the end of the decade, which will only be slightly up from the 2.12 mb/d the company averaged in 2015. The target is about 100,000 barrels per day less than the most recent estimate from last year. But it stands in stark contrast to the company’s ambitions from a few years ago, when it projected that it would be able to produce 4 mb/d by 2020. Related: Forget $20 - Oil Prices At $8 Per Barrel In Canada

Last year, Petrobras surprised everyone when it declined to bid on new oil and gas offerings in a public auction in October. Petrobras has long been a regular fixture at lease sales, where it typically made up more than half of successful bids. With little resources to spare, the state-owned firm stayed away, the first time it has chosen not to bid at an auction.

The drastic spending cuts call into question the company’s long-term health, given significantly lower production levels that will result from the pullback. But the company feels it has no choice.

Still, the spending cuts, and the resulting downward revision of expected production, means that Petrobras won’t be able to grow itself out of its debt problem. That means the world’s most indebted oil company will have to resort to selling off assets to whittle away at its debt load.

The problem with that strategy, however, is that selling off assets in a depressed marketplace will mean Petrobras probably won’t be able to earn as much as it hopes. Asset valuations have tumbled along with the price of crude. Related: Saudi Arabia: A Weak Kingdom On Its Knees?

“Petrobras plans to spend the same amount it should generate in cash this year, leaving no margin to reduce its massive debt,” Flavio Conde, a Sao Paulo-based oil analyst, told Bloomberg. “The company is now 100 percent dependent on asset sales to reduce leverage, and you can’t control sales results."

Petrobras has plans to divest itself of $14.4 billion worth of assets in 2016, and over the next several years it hopes to sell $43 billion worth of assets.

Too much debt, not enough money to spend on new production…It is a no-win situation for Brazil’s most iconic company.

By Nick Cunningham of Oilprice.com

More Top Reads From Oilprice.com:




Back to homepage


Leave a comment
  • Gantal on January 18 2016 said:
    There's no 'economic instability' in China, regardless of how hard we pray for it. China will add over $1 trillion to GDP this year and close it out as the world's first $20 trillion economy. Low debt, rising wages and a smooth transition to a consumption-led economy help keep the ship steady.
  • Phil62 on January 18 2016 said:
    OK with you BUT I believe that we should not criticize Petrobras now of having a more careful approach than in the past. Finally, the decrease in production growth is limited compared with the Capex savings and, as long as the oil prices are so depressed, it has more sense to invest in derivated products.

Leave a comment




Oilprice - The No. 1 Source for Oil & Energy News