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Friday, June 15, 2012

Petrobras Cuts Production Targets


June 15, 2012 12:13 am

Petrobras cuts production targets

Petrobras has slashed its production targets under a $236.5bn investment plan as Brazil’s state-run oil company struggles to adapt to government policies affecting its operations.
The Rio de Janeiro-based company said on Thursday that under its new five-year plan it would produce about 5.7m barrels of oil equivalent a day in 2020 – 11 per cent less than it forecast last year.

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In spite of making one of the world’s largest offshore oil discoveries in 2007, Petrobras has fallen out of favour with investors as the Brazilian government has leaned on the company to further the country’s wider development goals.
Domestic caps on fuel prices to curb inflation have not only stopped Petrobras from benefiting from rising global oil prices, but have forced it to sell its imported fuel at a loss.
At $236.5bn, the investment programme is still larger than Petrobras’s $224.7bn 2011-15 plan. Under the new 2012-16 guidelines, one of the world’s biggest corporate investment plans, Petrobras will invest 60 per cent of total capital expenditures in exploration and production, compared with 57 per cent in the previous plan.
However, analysts took comfort on Thursday in the company’s continued focus on the more profitable areas of exploration and production, rather than refining.
Rather than a more pessimistic outlook, some put down the lower production targets to the more realistic stance of Maria das Graças Foster, the new chief executive.
Petrobras shares have fallen about 30 per cent since this year’s peak in February.
“They didn’t roll back the [capital expenditure] and the idea that they would pull back on investments when the economy is slowing down just isn’t realistic,” he said.
Its preferred shares, the company’s most popular class of stock, fell almost 4 per cent in intraday trading on Thursday to R$18.20 – the biggest one-day decline in nearly a month.
Petrobras last month reported that net income had fallen 16 per cent in the first quarter to R$9.2bn ($4.5bn) from R$11bn in the previous year after high costs eroded profits.
The company has been subjected to a 65 per cent local content rule, which has raised its production costs, and has been prohibited from raising wholesale petrol and diesel prices in Brazil since 2008.
However, Edison Lobão, Brazil’s energy minister, recently indicated the government is prepared to raise the cap if international oil prices reach as high as $130 a barrel.
“The government is sensitive to the fact that Petrobras is becoming overstretched,” said Christopher Garman, an analyst at Eurasia Group. “When push comes to shove, the one thing the government is likely to give ground on is gasoline prices.”