- Daily Zen
Latin America’s biggest oil producer plans to invest in high-quality derivatives and base-oils.
Petroleo Brasileiro SA or Petrobras, Brazil’s state-owned oil producer, will increase its capital expenditure to $68 billion over the next five years to increase oil production in the subsea pre-salt area. The latest spending plan for 2022 to 2026 is a substantive increase compared to its previous budget of $55 billion for the 2021-2025 period.
The company says its fields are cheaper to exploit and have lower carbon emissions per barrel compared to other such oil field discoveries over recent years. “[Our focus is] to gain time in this race looking towards the 2050 horizon, when the use of fossil fuels could decrease in the world. We want to be an option. As long as there is a need, Petrobras will be [there] because of its efficiency and low carbon content,” Joaquim Silva e Luna, chief executive, told the Financial Times.
Petrobras will spend $57 billion on exploration and production, about $10 billion more than its previous plan. Of the total, $38.2 billion will be spent on pre-salt development, up from its previously mentioned $32.5 billion. PBR intends to add 15 production platforms, which will enter into production in the next five years.
Although the overall spending plan is still below what was planned before the pandemic, it is still substantial.
Concerns about climate change have forced many big energy companies to abandon plans to conduct any new offshore drilling for oil and gas. The wells in pre-salt areas are highly productive, meaning that “extractive activity has less carbon emissions per barrel than the average. Also, it is lighter oil that requires less carbon emissions to process,” said Francisco Monaldi, fellow in Latin American energy policy at Rice University’s Baker Institute.
Petrobras has committed $2.8 billion to reduce its emissions by 25 percent by the end of the decade. But critics are not convinced. “If in today’s world matrix, you replace Petrobras oil with another, it will certainly have more emissions,” said Rodrigo Araujo Alves, chief financial officer.
Old benchmarks and global stocks saw a slide over news of the outbreak of a new strain of the coronavirus. After a 3.9 percent drop on Friday, Petrobras’ São Paulo-listed preferred stock is down 1.5 percent in 2021, still outperforming the wider Bovespa index, which has shed 14 percent.
Petrobras plans to generate $15-$25 billion through asset divestments to support investment opportunities and improve the efficiency of operations. The divestments will also generate cash to clear debts.
The government has a 37 percent stake in the oil company but more than half voting rights. Petrobras has been rocked by scandals and corruption charges over the years, which almost pushed it to the brink of bankruptcy.
With high inflation and an election year, the government is bent upon making the company toe its line about the pricing of crude oil, which is done in line with international market rates. Silva e Luna insists that he would stick to the pricing and resist any external meddling. “We understand the political discussion, but we believe there is no room for interference,” he said. “On this point our investors can feel secure.” Silva e Luna is a former army general and ex-defence minister and was appointed as head of the company earlier this year after the President dismissed his predecessor over a dispute about fuel prices.