(Adds Petrobras comment from company meetings with press,
By Jeb Blount and Guillermo Parra-Bernal
RIO DE JANEIRO/SAO PAULO, Sept 20 Brazil's
state-led oil company Petrobras on Tuesday cut planned
investments by 25 percent in a drive to reduce the largest debt
burden among global petroleum producers and revive investor
confidence battered by a corruption scandal.
Petrobras contributes about 10 percent of the nation's
economic output and Brazil's government, the company's
controlling shareholder, is counting on it to help pull the
economy out of its worst recession in decades.
Petróleo Brasileiro SA, as Petrobras is formally
known, pledged up to $74.1 billion in capital spending for the
2017-2021 period compared with a $98.4 billion target in the
prior four-year 2015-2019 plan, according to a securities
This program outlines Petrobras' smallest capital budget
since 2006 and fell short of the $82.7 billion average forecast
of eight analysts surveyed by Reuters.
Petrobras reaffirmed its goal of $15.1 billion in asset
sales for the 2015-2016 period and plans to raise an additional
$19.5 billion through divestments and partnerships between 2017
The company said it could sell as much as $40 billion of
assets over the next 10 years.
Chief Executive Officer Pedro Parente is seeking to cut the
company's $125 billion of debt, amassed after years of
state-directed policies overstretched the company.
Parente faces several obstacles including the lowest oil
prices in a decade, a corruption scandal highlighting governance
flaws, and its struggle to recover from huge losses incurred
over many years because of government-mandated fuel subsidies.
Petrobras's stock rose 2.68 percent in afternoon
trading in Sao Paulo. Its U.S.-traded common stock rose
1.31 percent in New York.
Speaking to reporters in Rio de Janeiro, Parente vowed to
cut costs and sharpen the focus on high-return activities to
"This plan should start bearing fruit within two years, when
we expect to have strong metrics that will allow us to return to
the good situation of a few years back," said Parente, who was
appointed in May to turn around the struggling oil giant.
In line with focusing on oil and gas production, Petrobras
said it will exit the biofuels business by selling ethanol and
biodiesel production assets.
The plan shows how far Parente, appointed by new President
Michel Temer, is prepared to go to reverse the policies of
former Brazilian President Dilma Rousseff, removed from office
in August for breaking budget laws.
"Lower capital spending makes absolute sense as the company
aims at decreasing cash burn to accommodate interest and debt
payments and to avoid stretching even further its balance
sheet," said Rodolfo de Angele, an analyst with JPMorgan
Securities in Sao Paulo, in a note to clients.
Exploration and production will get 82 percent of the
investment budget. Spending on "downstream" refining, natural
gas distribution and electricity generation will see spending
cut 24 percent to $12.4 billion.
While investment cuts were bigger than analysts expected,
production targets were largely unchanged.
Petrobras expects crude output in Brazil to fall in 2017 to
2.07 million barrels per day (bpd) from an average 2.22 million
bpd in August. However, the company maintained its target of
2.70 million bpd for 2020, 16 percent above the median estimate
of analysts surveyed by Reuters.
The company expects to produce 2.77 million bpd in 2021.
Total output of domestic and international oil and natural
gas equivalent is expected to rise 19 percent in the 2017-2021
period to an average of 3.41 million bpd.
Before the plan was released, Luana Siegfried, oil and gas
analyst at Raymond James in Houston, said failure to cut the
outlook for 2020 Brazil crude oil production in the face of
significant budget cuts raises the risk Petrobras will fall
short of its promises.
In the past 14 years Petrobras has met its annual oil output
target only once, in 2015.
Parente said that big efficiency gains and
higher-than-expected output from new offshore wells will allow
Petrobras to meet its targets in the years ahead.
The business plan is based on a price of Brent crude oil
averaging $48 a barrel in 2017 rising to $71 a barrel in
2021. The plan expects the U.S. dollar to be worth an average of
3.55 reais in 2017, strengthening to 3.71 reais in 2021.
(Additional reporting by Marta Nogueira and Rodrigo Viga Gaier
in Rio de Janeiro, and Roberto Samora and Marcelo Teixeira in
São Paulo; Editing by W Simon and Daniel Bases)