Petrobras Ups CapEx Spending Targets

Jim Brown
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Petrobras announced its earnings on Friday after the close and along with those earnings they said they were boosting their spending over the next five years to $200-$220 billion compared to the current $174 billion pace.

In order to reach those levels they will have to be approved by shareholders on April 22nd and a new capital infusion plan will need to be approved by the government. Petrobras is seeking to sell between $40-$60 billion in stock in order to fund the additional spending needed to develop the subsalt fields offshore of Brazil. The stock sale is expected to take place by year-end.

Shares of Petrobras have languished since the share offer was announced. Nobody really know what to expect although Goldman Sachs said it should not be a problem given their new found reserves.

Petrobras said costs had declined -21%, revenues fell -8.7% but profits were up around 10%. Petrobras beat street estimates by about 10%.

Petrobras also warned that 2010 production estimates were lowered to 2.1 million barrels pas day from a prior forecast of 2.25 mbpd. The company also said it missed its 2009 estimates of 2.05 mbpd but did not elaborate.

On Monday Brazil's Planning Minister said subsalt production could surge in 2013-2014 but then level off. This is contrary to published estimates from Petrobras. The subsalt reserves may be proving more difficult to produce than previously thought. The oil reserves are 4.3 miles below the ocean floor and under a thick layer of unstable salt.

The government is forcing Petrobras to invest rapidly, probably too quickly, in order to boost government revenue. Total development of the subsalt reserves is expected to cost $400 billion. By forcing Petrobras to raise capital too quickly they may be forcing lower profits on the company in future years.

Petrobras estimates they will be producing 582,000 bpd of subsalt oil by 2015. Since there was no subsalt production before 2010 this is all entirely new production. The following table is the complete estimate from Petrobras.

Year - Output (thousands bpd)
2013 - 219
2014 - 368
2015 - 582
2016 - 959
2017 - 1,315
2018 - 1,532
2019 - 1,767
2020 - 1,815

I believe these are probably optimistic but with a couple hundred billion dollars funding the project anything is possible. Petrobras is now the largest lessee of drilling rigs in the world and they have dozens under construction. They realize that leasing deepwater rigs for $500,000 a day to drill the Tupi is far more expensive than building their own drillships for $650 million and owning them for the next 20 years.

The deepwater drillship market is going to tighten up soon. Anadarko announced another deepwater find in the GOM this week and a new gas find in the deepwater off the coast of Africa. Anadarko now has 3.5 million acres of deepwater leases in the GOM. That will take a lot of drilling to prove out and even more if they find additional oil. Shell and Nexen also announced a new deepwater find in the GOM.

By the time these companies try to start production on these new finds we should be at peak oil or even past it so the money for development should be easy to find.

Jim Brown

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