Petrobras (NYSE:PBR) released an updated five-year investment plan that will require higher capital spending on exploration and development, and yield fewer oil and gas resources relative to the previous plan.
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New Five-Year Plan
Petrobras set a $236.5 billion capital budget for 2012 to 2016, with approximately $142 billion or 60% dedicated to its exploration and production segment. The balance of the funds will be spent on the downstream segment and other areas. The five-year investment program released last year by the company called for $224.7 billion in capital spending from 2011 to 2015.
It estimates that this level of investment will increase production to 3.3 million barrels of oil equivalent (BOE) per day in 2016, with approximately 3 million BOE per day coming from Brazil. This production growth will not be linear and the company expects flat production in 2012 and 2013, with growth starting in 2014 at a rate of around 5% annually.
Petrobras also set a long-term production target and estimates that oil and gas production will reach 5.7 million BOE per day in 2020. This is an 11% production cut from the target set in the 2011 plan.
Exxon Mobil (NYSE:XOM) also has a large investment program over the next five years, and plans to spend approximately $37 billion annually from 2012 to 2016. This spending will increase production at an average rate of 1 to 2% annually over that time.
Petrobras will finance this spending plan through a combination of operating cash flow and increased debt, with the company estimating additional debt of $16 billion to $18 billion per year. It has pledged not to finance its capital plan with any equity financing during the next five years.
The company has been active in exploring and developing oil over the last few years and expects 12 new projects to come on line from 2012 to 2015. These projects will add 1.2 million BOE of production per day to its base.
Petrobras estimates that 51% of its exploration and production spending will be allocated to the projects in offshore Brazil, where many successful discoveries have been found in the pre-salt basin.
Anadarko Petroleum (NYSE:APC) is active in offshore Brazil and reported a successful exploration well at the Wahoo Field and is currently appraising the discovery. BP (NYSE:BP) holds a 25% interest in this field. Anadarko Petroleum also reported a successful well at the Ituana Field in 2011, along with partner Ecopetrol (NYSE:EC).
The Bottom Line
While Petrobras will spend more money to get less oil and gas over the next five years, the company's investment plan is more realistic and recognizes the difficulties inherent in the search for oil and gas in the twenty-first century.
At the time of writing, Eric Fox did not own shares in any of the companies mentioned in this article.