Petrobras cuts five-year spending plan 25% to $74 billion
RIO DE JANEIRO (Bloomberg) -- Petroleo Brasileiro reduced investments and said it will sell more assets in its latest business plan as it looks to downsize operations and slash the industry’s biggest debt load.
The 2017-2021 business plan, the first drafted under CEO Pedro Parente, focuses on accelerating debt reduction and adapting to low international oil prices amid Brazil’s deepest two-year recession on record, the state-controlled company said Tuesday. Petrobras, as the Rio de Janeiro-based producer is known, has reduced its five-year investment goal to $74.1 billion, down from $98.4 billion in the most recent plan and $236.5 billion in the five-year plan it announced in 2012.
Investors are closely watching the company’s ability to reduce leverage after its debt surged during the commodities boom because it was subsidizing fuel imports as part of a government push to control inflation. Net debt-to-EBITDA is expected to fall to 2.5 in 2018, faster than the internal leverage targets set in previous plans.
"The new five-year business plan is, in our view, the most important trigger for Petrobras stocks in the short term," Itau BBA analysts Diego Mendes and Andre Hachem said in an email to Bloomberg before the plan was released.
The state-controlled company also maintained its $15.1-billion asset sale target for the two years through the end of 2016, and plans to raise an additional $19.5 billion from divestments in 2017 and 2018. Petrobras is pursuing one of the most ambitious divestment plans since BP sold more than $30 billion in a downsizing strategy after the Deepwater Horizon oil spill.
Domestic oil production is targeted to grow to 2.77 MMbpd in 2021, with total oil and gas production, including foreign operations, reaching 3.4 MMboe.
"The long-term story is highly dependent on higher oil prices to provide cash-flow debt reduction," Bank of America Merrill Lynch analysts Frank McGann and Vicente Falanga Neto said in a Sept. 14 report for clients.
