Petrobras (NYSE:PBR) gave final approval to a five-year operating plan that requires $225 billion in capital spending through 2015. The company plans to spend more than half this amount to explore and develop oil and gas assets.
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Petrobras, or Petróleo Brasileiro, was formed in 1953 and is the Brazilian national oil company. The company used to have a monopoly on all oil and gas activities in Brazil and was completely owned by the government, but a deregulation effort that began in the 1990s led to partial private ownership and a public listing of the company's shares. The Brazilian government now owns 48% of the company's shares and a slight majority of the voting rights.
Petrobras is a giant and ranks up with some of the largest international oil companies in the world. The company reported proved reserves of 12.7 billion barrels of oil equivalent (BOE) at the end of 2010, putting it slightly under Royal Dutch Shell (NYSE:RDS.A) (NYSE:RDS.B), which has 14.2 billion BOE in proved reserves and above Total (NYSE:TOT), which has 10.7 billion BOE. Exxon Mobil (NYSE:XOM), the world's largest oil and gas company, reported proved reserves of 24.8 billion BOE.
Exploration and Production
Petrobras has allocated $127.5 billion, or 57% of its capital budget, toward the exploration and production segment. This is an increase from the $118.8 billion exploration and production budget approved for the 2010 to 2014 business plan.
Petrobras plans to spend 95% of these funds on properties in Brazil, with an emphasis on the pre-salt or sub-salt properties located offshore.
If the company is successful in its efforts over the next five years, it estimates that production will increase from 2.77 million BOE per day in 2011 to 3.99 million BOE in 2015. The company also expects to double proved reserves over the same time frame.
Petrobras also has a long-term goal to achieve production of 6.4 million BOE per day in 2020.
Petrobras also hopes to fund this ambitious spending plan without issuing equity. The bulk of the spending will be financed through operating cash flow, leaving a funding gap of between $67 billion and $91.4 billion over the five years. The company plans to issue debt to fund this shortfall and has pledged to maintain its investment-grade ratings.
Petrobras has nearly 700 projects incorporated into its five-year operating plan, and it will rely heavily on the pre-salt area. The company hopes to get production from this play up to 543,000 BOE per day by 2014, and to 1.15 million by 2020.
One major area of exploration and development for Petrobras over the next five years will be in the offshore Lula field (formerly known as Tupi), which holds billions of barrels of recoverable reserves of oil.
The company has a number of projects scheduled for this field and reported a recent well that produced an average of approximately 28,000 BOE per day.
Center of the Energy World is Shifting
The center of the energy world is shifting partially toward Brazil and the large prospective oil and gas reserves located offshore. Energy investors that feel compelled to participate, as Brazil takes its place among the world's top producers over the next decade, should consider Petrobras as the vehicle. (For additional reading, check out Investing In Brazil 101.)
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