On March 26, Petroleo Brasileiro (Petrobras) has announced a capital expenditure (CapEx) reduction from $12bn to $8.5bn in its five-year plan where approximately 48% of the CapEx is allocated to pre-salt projects.
In terms of the assets, CapEx reduction will result in either a slower development towards the first production or a slower ramp-up to peak capacity. With these adjustments, Petrobras is trying to reduce its outflow of investment and counter the loss of cash flow due to lower price and production cuts.
Pre-salt assets have been able to reach as low as $20 per barrel (bbl) in breakeven oil price mainly due to the high productivity of their wells, which usually average 30 thousand barrels per day (mbd) to 40mbd of peak production. These offshore projects are highly capital-intensive and Petrobras has announced reducing its expenditure in such projects with the objective of keeping the finances of the company afloat.
Summary analysis for key Petrobras offshore assets:
- The selected 33 offshore fields for Petrobras are based on key assets by production share and include projects the company has particularly reported in its latest five-year plan. In our updated valuations for these assets, we assume a reduction in the development CapEx of 25%, amounting to $3bn. The fields account for 62% of the total production of Petrobras.
- GlobalData estimates that the loss in production growth due to the CapEx reduction will amount to 198 thousand barrels of oil equivalent per day (mboed), of which 143 mbd is oil, by the end of 2020 compared with the production forecast in the pre-price fall scenario.
- Although there is lower CapEx investment in 2020, totalling $519m, these savings are not enough to counter the loss in revenue due to lower production and lower commodity prices. Indeed, the overall forecast for post-tax cash flows is ultimately reduced in 2020 and future years.