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Petrobras Won’t Need Additional Debt in a Decade, CFO Says

By on July 27, 2011

Petroleo Brasileiro SA, Brazil’s state-controlled oil producer, said its plan to more than double output will boost cash flow and eliminate the need to tap debt markets after about 10 years.

The company’s profit from oil sales will be enough to cover operating and debt costs starting in about a decade, Chief Financial Officer Almir Barbassa said yesterday in an interview at its Rio de Janeiro headquarters. Petrobras’s exit from the bond market will increase the value of existing notes because the amount of total debt will start declining, he said.

Petrobras, as the company is known, said July 22 it will invest $224.7 billion through 2015, more than any major oil producer in the world, as it develops the Western Hemisphere’s largest discoveries in about three decades. As part of the plan, the company said it will raise as much as $91 billion in debt and $13.6 billion through asset sales and cost cuts.

“Cash flow will be enough to pay debt amortizations and the investments we will have,” Barbassa said. “Few companies in the world can say this.”

Petrobras’s business plan targets 19 percent more output in 2020, compared with the previous program, while spending remains little changed. Petrobras will develop large deep-water discoveries and tap oil reservoirs near existing facilities to get more production from similar investments, Barbassa said.

Asset Sales

Petrobras acquired 5 billion barrels of deep-water reserves from the government last year, and plans to produce 845,000 barrels a day from the fields in 2020.

“These are gigantic, highly productive fields,” he said.

Petrobras is wrapping up the sale of a 50 percent stake of an offshore block in Tanzania for about $100 million, he said. The company may consider selling stakes in exploration blocks and refineries outside of Brazil, Barbassa said.

“They are being reviewed along with the rest of our assets,” said Barbassa, when asked if Petrobras will sell stakes in foreign refineries. “It’s a combination of Petrobras’s interests and those of the market.”

Petrobras is developing offshore oil discoveries in the U.S. Gulf of Mexico, Nigeria and Angola, and has refineries in the U.S. and Japan.

Petrobras won’t sell stakes in projects that produce oil and have proved reserves, or areas in the so-called pre-salt region of Brazil where the company has its largest discoveries, he said. The company may sell some other assets in Brazil, Barbassa said, without specifying possible divestitures.

Rising Production

Petrobras aims to increase daily output to 4 million barrels of oil and equivalents by 2015 and to 6.4 million barrels by 2020. Output averaged 2.64 million barrels a day in June. Petrobras’s previous five-year plan called for 5.4 million barrels a day in 2020.

The oil producer will raise as much as $12 billion a year in net debt, excluding amortization costs. Total debt as a percentage of equity will rise to as much as 35 percent by the end of 2015, up from 17 percent at the end of the first quarter.

UBS AG analyst Lilyanna Yang yesterday upgraded Petrobras to “buy” from “hold,” citing a “strong” decline in this year’s stock price and lower-than-expected investments over the next five years.

Petrobras gained 14 centavos, or 0.6 percent, to 23.64 reais in Sao Paulo trading as of 10:18 a.m. New York time, and has declined 14 percent this year, compared with a 13 percent drop for the benchmark Bovespa Index.

BusinessWeek