Key Highlights Of Petrobras’ New Strategic Plan
With commodity prices signalling a rebound in 2018, most of the oil and gas companies, who had been restricting their operations as well as capital investments to remain afloat in the commodity downturn, have started to revisit their strategy for the coming years. One such company is 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. However, with the improving outlook for the commodity markets, the company has made some changes to its strategic business management plan (BMP) for the period 2018-2022, which should enable it to survive the current volatile markets more efficiently. Below are some of the key highlights of Petrobras’ revised BMP for 2018-2022.
See Our Complete Analysis For Petrobras Here
Production Targets
- Hess Corporation Stock Is A Risky Bet
- More Room For Growth In Enterprise Products Stock?
- Williams Companies Stock To Gain With Rising Natural Gas Demand
- Why Hess Corporation Stock Is A Good Bet In The Battered Energy Sector
- Down 50% This Year, Occidental Stock Has A Long Road To Recovery With Sizable Downside Risk
- Petrobras’ Revenue Is Looking Up With Tailwind From The Brazilian Economy
Based on the previous BMP, Petrobras had expected to grow its overall hydrocarbon production to 3.41 million barrels of oil equivalent per day (MMboed) by 2021, growing its output by 6.8% over the next 3-4 years. However, with the anticipated recovery in the commodity prices, the integrated company now plans to ramp up its total output from an estimated 2.7 MMboed in 2018 to 3.55 MMboed in 2022. This would translate into a compounded annual growth rate of 7.1% over the next four years, which is slightly higher than the previous growth target.
A major portion of the company’s production growth will be driven by its domestic liquids output. According to the company’s estimates, its domestic liquids production is likely to rise from 2.1 MMboed in 2018 to 2.88 MMboed by 2022, growing at a compounded rate of 8.2% over the next few years. The company aims to achieve its production target through focused capital investment, new and strategic partnerships, and a well-planned divestment program.
Capital Investment Plan
In the wake of the improving commodity markets and its aggressive growth plans, Petrobras now aims to spend $74.5 billion in capital expenditure over the next 3-4 years. Since exploration and production of oil and natural gas is Petrobras’ core business, more than 80% of this capital budget will be spent on its upstream operations. Given the company’s plans to ramp up its hydrocarbon production over the next few years, a majority of the capital expenditure will be concentrated on completing major projects and bringing production on-stream as soon as possible.
Further, Petrobras plans to spend around $13.1 billion on its downstream operations, primarily in refining, transportation, and marketing. For this, the company plans to invest in building new refineries and increase the productivity of its current refineries in order to reduce its dependence on imports and improve its operational performance.
Capital Structure Targets
Petrobras is the world’s most indebted integrated energy company with a net debt of almost $90 billion at the end of the third quarter of 2017. A heavy debt burden not only weighs on the profitability of a company in the form of high interest cost, but also reduces its ability to raise further debt to meet its capital expenditure needs in the current low price environment. Consequently, Petrobras has been working consistently to reduce its debt obligations and optimize its capital structure to enhance its shareholder returns. For this, the company plans to bring down its financial leverage, measured by Net Debt-to-Adjusted EBITDA ratio, to 2.5x by the end of 2018. This is similar to the company’s previous target and is likely to converge the company’s capital structure with that of the overall average of the industry by 2022.
To achieve this, Petrobras aims to enter into strategic partnerships with relevant third parties, within and outside Brazil, and divest a sizeable portion of its core and non-core assets over the next few years to finance its capital spending and debt reduction needs. The company plans to raise $21 billion from these strategic partnerships and divestment program between 2017 and 2018, which it plans to utilize to enhance its capital structure.
View Interactive Institutional Research (Powered by Trefis):
Global Large Cap | U.S. Mid & Small Cap | European Large & Mid Cap