Brazil in deep trouble despite new budgetNews // July 6, 2015
Petrobras has long been a pioneer in the adoption and deployment of deepwater technology. This has enabled the company to build huge reserves of some 16 billion barrels of oil. Converting these reserves to production, however, is another matter and Petrobras has a history of setting ambitious targets, with a poor record of meeting them.
As Douglas-Westwood notes, the long delayed ‘2015-2019 Business and Management Plan’ released last week is a reflection of the new reality for Petrobras.
With oil prices having fallen steeply, and unfavourable exchange rates, Petrobras has slashed expenditure plans by 40 per cent from the plans announced a year ago.
Recognising the upstream challenges, the company is now allocating 84 per cent of its budget to E&P compared to 70 per cent in the previous plan. The biggest cut goes to their refining and supply sector which has seen its budget reduced by 67 per cent compared to last year's plan.
Production decline from existing fields is a huge challenge with around 200,000 bpd of capacity eroded each year. Brazil’s huge deepwater potential remains constrained with Petrobras having to revise their production target for 2020, which now forecasts domestic oil output to increase to 2.8 million barrels per day – 40 per cent lower than its projection 12 months ago.
Douglas-Westwood predicts that over the forecast period, Brazil will need to drill around 300 development wells in deepwater, in order to sustain and reach its production target. However, of the 29 new rigs being built by the company, many are under threat from either funding problems or yards withdrawing from the contracts.
Douglas-Westwood saidit has already taken a conservative position on Brazil and the cut in production target now brings in line Petrobras’ expectations and its ‘DW D&P’ forecast.
"The scale and importance of Brazil in the overall offshore sector means that the impact of the latest spending revisions will be felt throughout the oilfield service industry supply chain," said Douglas-Westwood.