Petrobras Monthly Update: August Oil and Gas Production From Brazil Rises By 2.9% Over July

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Petroleo Brasileiro

Petroleo Brasileiro Petrobras (NYSE:PBR) recently announced its August 2014 hydrocarbon production figures. The company’s total oil and gas production in Brazil increased to 2,551 thousand barrels of oil equivalent per day (MBOED) from 2,479 MBOED in July. Its domestic crude oil production grew by 2.7% from 2,049 thousand barrels per day (MBD) in July to 2,105 MBD last month. The rise in Petrobras’ hydrocarbon production was primarily driven by the ramp up of P-55 and P-58 platforms at Roncador and Parque das Baleias (Whale Park) fields, respectively. Both the fields are located in the offshore Campos Basin that holds more than two-thirds of the company’s total proved hydrocarbon reserves in Brazil. [1]

Petrobras is a vertically integrated oil and gas company, which operates in both the upstream and downstream segments of the industry. The Brazilian multinational energy giant is one of the largest companies in Latin America by annual sales revenue. Its operations account for a large majority of the total oil and gas production in Brazil. Last year, Petrobras’ average daily oil production in Brazil was 1,931.4 thousand barrels per day (MBD), an estimated 90.9% of Brazil’s total oil production. We currently have a $21/share price estimate for Petrobras, which values it at almost 10x our 2014 diluted EPS estimate of $2.1 for the company.

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Upstream Production On The Rise

Petrobras’ upstream production is expected to grow significantly in the coming years as it continues to develop its pre-salt reserves. The expression “pre-salt” refers to an aggregation of rocks that hold hydrocarbon reserves and are located in ultra-deep waters in a large portion of the Brazilian coast. It is called pre-salt because the rock interval ranges under an extensive layer of salt, which can be as much as 2,000 meters thick. The term “pre” is used because these rocks were deposited before the salt layer. The total depth of these rocks can be as much as 7,000 meters from the surface of the sea.

Between 2014 and 2018, Petrobras plans to invest $153.9 billion in the exploration and production of hydrocarbons in Brazil. It plans to invest a lion’s share of this amount ($112.5 billion or 73%) in the development of existing proved reserves, with more than 64% of that going into the development of pre-salt reserves. Currently, production from pre-salt reserves accounts for just around 22% of Petrobras’ total oil production, but the company plans to increase this figure to 53% by 2020. [2]

During the first 8 months of this year, Petrobras’ crude oil production from Brazil has grown by almost 3.5% y-o-y, primarily driven by the development of its hydrocarbon reserves in the Campos and Santos basins, located off the country’s southeast coast. The company recently announced that oil production from fields operated by it in the pre-salt areas of Campos and Santos Basins, which averaged just 302 MBD last year, hit a record level of 581 MBD on August 25. Petrobras plans to grow its average daily crude oil and natural gas liquids production by 6.5-8.5% y-o-y this year. However, given the progress made so far, we believe the target to be very ambitious and have factored in a 4% y-o-y increase in its total upstream production for the full year. [1]

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Notes:
  1. Monthly crude oil and natural gas production in – Brazil and Abroad, investidorpetrobras.com [] []
  2. Aggregate Production From The Pre-Salt Layer Reaches 343 Million Barrels, petrobras.com []