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.
Investopedia Broker Guides: Enhance your trading with the tools from today's top online brokers.

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.

SEE: Unearth Profits In Oil Exploration And Production

Financing
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.

Projects
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.

Related Articles
  1. Personal Finance

    A Day in the Life of an Equity Research Analyst

    What does an equity research analyst do on an everyday basis?
  2. Mutual Funds & ETFs

    ETF Analysis: PowerShares S&P 500 Downside Hedged

    Find out about the PowerShares S&P 500 Downside Hedged ETF, and learn detailed information about characteristics, suitability and recommendations of it.
  3. Mutual Funds & ETFs

    ETF Analysis: ProShares Large Cap Core Plus

    Learn information about the ProShares Large Cap Core Plus ETF, and explore detailed analysis of its characteristics, suitability and recommendations.
  4. Mutual Funds & ETFs

    ETF Analysis: iShares Core Growth Allocation

    Find out about the iShares Core Growth Allocation Fund, and learn detailed information about its characteristics, suitability and recommendations.
  5. Mutual Funds & ETFs

    ETF Analysis: iShares MSCI USA Minimum Volatility

    Learn about the iShares MSCI USA Minimum Volatility exchange-traded fund, which invests in low-volatility equities traded on the U.S. stock market.
  6. Stock Analysis

    Should You Follow Millionaires into This Sector?

    Millionaire investors—and those who follow them—should take another look at the current economic situation before making any more investment decisions.
  7. Professionals

    What to do During a Market Correction

    The market has corrected...now what? Here's what you should consider rather than panicking.
  8. Mutual Funds & ETFs

    ETF Analysis: Vanguard Mid-Cap Value

    Take an in-depth look at the Vanguard Mid-Cap Value ETF, one of the largest and most popular mid-cap funds in the U.S. equity space.
  9. Mutual Funds & ETFs

    ETF Analysis: Schwab US Broad Market

    Take an in-depth look at the Schwab U.S. Broad Market ETF, an incredibly low-cost fund based on a wide selection of the U.S. equity market.
  10. Stock Analysis

    The 3 Energy Stocks You'll Wish You Bought in 2015

    Learn about the energy sector and the types of companies that operate within the sector. Find out about some of the best-performing energy stocks in 2015.
RELATED TERMS
  1. Equity

    The value of an asset less the value of all liabilities on that ...
  2. Hard-To-Sell Asset

    An asset that is extremely difficult to dispose of either due ...
  3. Sucker Yield

    When an investor has essentially risked all of his capital for ...
  4. Benchmark Crude Oil

    Benchmark crude oil is crude oil that serves as a pricing reference, ...
  5. Unconventional Oil

    A type of petroleum that is produced or obtained through techniques ...
  6. Green collar

    A worker who is employed in an industry in the environmental ...
RELATED FAQS
  1. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  2. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  3. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
  4. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>
  5. What is the difference between issued share capital and subscribed share capital?

    The difference between subscribed share capital and issued share capital is the former relates to the amount of stock for ... Read Full Answer >>
  6. What happens to the shares of stock purchased in a tender offer?

    The shares of stock purchased in a tender offer become the property of the purchaser. From that point forward, the purchaser, ... Read Full Answer >>

You May Also Like

COMPANIES IN THIS ARTICLE
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!