A Look At Petrobras’ Production Strategy
As the worst-ever commodity downturn persists much longer than anticipated, large integrated companies, that were relying on their downstream operations, are revisiting their strategies to remain afloat in the present weak price environment. Petroleo Brasileiro Petrobras (NYSE:PBR), a Brazilian integrated company that has witnessed a sharp plunge in its profitability as well as cash flows due to the oil glut, has devised a strategic business management plan (BMP) for the period 2017-2021 in order to weather the ongoing down cycle. In this series of articles, we will discuss Petrobras’ plans to deal with the current commodity trough. We begin by analyzing the company’s production plans over the next 4-5 years.
Production Forecast
Despite declining profits, Petrobras has continued to increase its domestic hydrocarbon production over the last few quarters. In the third quarter of this year, the oil and gas company produced 2.7 million barrels of oil equivalent per day (MBOED), around 4% higher compared to the previous quarter of this year, as well as the same quarter of last year. At a time when most of the companies in the oil and gas industry are keeping a tight check on their capital spending, and, in turn, their production numbers, to sail through the ongoing turbulence in the commodity markets, Petrobras has set an optimistic growth target for its production over the coming years.
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Source: Petrobras’ Presentation at Rio Oil & Gas 2016 Expo & Conference
According to the company’s BMP for 2017-2021, Petrobras expects its liquids production from domestic operations to grow to 2.77 MBOED, a jump of over 7.5% annually over the next four years. Similarly, the company aims to increase its domestic natural gas production to 0.57 MBOED during the same period. This implies a compound annual growth rate of around 7% on the total hydrocarbon production over the remaining years of this decade. While such a big jump in the oil and gas output could be a huge upside for any company in a strong price environment, it could be detrimental for Petrobras if the commodity prices do not recover as quickly as the company is anticipating.
Our Take
Based on Trefis estimates, the crude oil prices are expected to recover gradually to $80 per barrel by 2021 backed by higher global demand and restricted supply of oil. However, given the uncertain political conditions in Brazil, coupled with the deteriorating financial position of Petrobras, we forecast the company’s domestic hydrocarbon production to remain subdued in the near term and grow at a nominal rate of under 1% over the next four to five years. However, if the Brazilian economic conditions improve due to a stable government and the commodity price rebound faster-than-expected, then the company will be able to deliver on its targets through its consistent and focused execution.
Stay tuned for our next analysis where we will discuss Petrobras’ cost control strategy – A Look At Petrobras’ Cost Reduction Strategy
Have more questions about Petrobras (NYSE:PBR)? See the links below:
- A Look At Petrobras’ Cost Reduction Strategy
- Petrobras’ Stock Plunges Due To Disappointing 3Q’16 Earnings; Company Sets An Optimistic Production Plan For Next 4 Years
- Petrobras To Post A Strong Quarter Backed By Higher Realizations And Cost Savings
- How Will Petrobras’ Leverage Move In The Next Three Years?
- How Will Petrobras’ Oil & Gas Production Move In The Next Five Years?
- How Important Is The Upstream Business For Petrobras?
- How Will Petrobras’ Revenue Move If Crude Oil Prices Rebound Over The Next Two Years?
- How Will Petrobras’ Revenue Move If Crude Oil Prices Continue To Remain Depressed Over The Next Two Years?
- Is It Time For Crude Oil Prices To Recover?
- Petrobras’ 2Q’16 Earnings Plunge On The Back Of Lower Commodity Prices
- Here’s Why We Revised Petrobras’ Price Estimate To $11 Per Share
- How Are Petrobras’ Revenue & EBITDA Composition Expected To Change By 2020?
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