Petrobras Presents 5-Year Plan

As per the 2012–2016 business plan of Brazilian oil giant Petroleo Brasileiro S.A. or Petrobras (PBR - Analyst Report), management will incur an average annual capital expenditure of $47.3 billion, netting $236.5 billion for five years.

Of the total budget, Petrobras plans to invest approximately $131.6 billion in Brazilian Exploration and Production (E&P) segment, with 69% being allocated for production development. Exploration activity and infrastructure development will respectively have 19% and 12% of the assigned budget. The company will invest almost 51% of the total E&P amount in the pre-salt cluster.

Management has directed almost $51.7 billion for the ongoing Downstream segment projects. The refining capacity expansion projects that are expected to come online by 2016 include the Abreu and Lima refinery and the first phase of Comperj unit.

For the Tres Lagoas Fertilizer Plant, the Ammonia Sulfate Fertilizer Plant, and the Thermoelectric Power Plant of the Gas & Energy segment, Petrobras has allocated $7.8 billion.

Petrobras will invest about $3.8 billion in the Biofuels segment, of which $1.9 billion will go toward projects under implementation and acquisitions. The Ethanol projects executed by the subsidiary Petrobras Biocombustível will absorb the majority of budget for the segment.

With $3.3 billion invested in logistics projects of the Distribution business unit, the company aims to satiate the growing domestic market demand as well as secure a strong footing in the sector.

The international operations of Petrobras will receive approximately $6 billion, particularly for its E&P activities that represent 83% of total investments.

Apart from the planned investments of Petrobras, the other partner companies are set to contribute about $34 billion during the 2012–2016 for capital programs.

Keeping in line with the investment plans, Petrobras expects oil and natural gas liquid (NGL) production worldwide to reach 3.3 million barrels of oil equivalent per day (MMboe/d) in 2016. In Brazil, the volume is expected to be 2.5 MMboe/d.

Much of the output growth will take place 2014 onward, supported by an estimated increase of 5–6% per year from 2014–2016. Production will remain at the same level as in 2011 for the next two years.

Petrobras’ long-term plan includes global production of 5.7 MMboe/d (5.7 MMboe/d in Brazil) of oil and natural gas in 2020.

The divesture and asset restructuring initiatives of Petrobras will focus on disposing overseas properties. The company targets to sell off assets worth $14.8 billion.

We maintain a long-term Neutral recommendation on Petrobras. The stock, which operates with other global energy players such as ExxonMobil Corp. (XOM - Analyst Report), PetroChina Co. Ltd. (PTR - Analyst Report) and Royal Dutch Shell plc (RDS.A - Analyst Report), currently, retains a Zacks #3 Rank that translates into a short-term Hold rating.