Petrobras has long been a pioneer in the adoption and deployment of deepwater technology. This has enabled them to build huge reserves of some 16 billion bbl.
Converting these reserves to production, however, is another matter and Petrobras has a history of setting ambitious targets, with a poor record of meeting them.
The long delayed "2015-2019 Business and Management Plan" released last week is a reflection of the new reality for Petrobras. With collapsed oil prices and unfavourable exchange rates, Petrobras has slashed their expenditure plans by 40% from the plans announced a year ago. Recognizing the upstream challenges, the company is now allocating 84% of its budget to exploration and production, compared to 70% in the previous plan. The biggest cut goes to their refining and supply sector which has seen its budget reduced by 67% compared to last year's plan.
Production decline from existing fields is a huge challenge with around 200,000 b/d of capacity eroded each year. Brazil’s huge deepwater potential remains constrained with Petrobras having to revise their production target for 2020, which now forecasts domestic oil output to increase to 2.8 MMb/d – 40% lower than its projection 12 months ago.
Douglas-Westwood predicts that over the forecast period, Brazil will need to drill around 300 development wells in deepwater, in order to sustain and reach its production target. However, of the 29 new rigs being built by the company, many are under threat from either funding problems or yards withdrawing from the contracts.
Douglas-Westwood had already taken a conservative position on Brazil and the cut in production target now brings in line Petrobras’ expectations and our own "DW D&P" forecast. The scale and importance of Brazil in the overall offshore sector means that the impact of the latest spending revisions will be felt throughout the oilfield service industry supply-chain.
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