Petrobras has finally announced a positive annual result, five years after the Lava Jato corruption probe left the Brazilian state-controlled company with spiraling debts. The firm closed the year with a US$ 25.8bn net profit, the highest figure in seven years, and a total of R$20.2bn (US$ 5.27bn) in asset sales.
Improved crude and fuel prices largely contributed towards the strong year. Oil jumped 50% year-on-year, in Reais, and fuel 32% year-on-year. Even a slight dip in production failed to impact the company's finances — production fell to 2.63mn bl/d oe from a record 2.65mn bl/d oe the year before.
Output is set to rise again this year and further boost the firm's bottom line. Four new production systems were installed in 2018 — P-74, the floating production, storage and offloading (FPSO) vessel Cidade de Campos, P-75 at Buzios and P-69 at Lula Extremo Sul — and this year Petrobras is pursuing another four in the pre-salt and deep-water regions.
Gabriel Fonseca, lead equity analyst at Brazilian brokerage firm XPI, says there is room for 10% production growth in 2019.
P-67 was the first platform to be completed this year, at Lula Norte in the Santos Basin. The FPSO has capacity to process 150,000bl/d of oil and 6mn m3 of natural gas. The platform is located in the Lula field, which is Brazil's most productive at 900,000bl/d, and is expected to hit 1mn bl/d later in 2019.
A further two platforms with the same capacity have also already begun producing. P-76 at Buzios, the country's second most productive field, began production in February, followed by P-77, also at Buzios in the pre-salt Santos Basin. Petrobras plans to add another production system in 2020, followed by three in 2021 and another three in 2022.
The start-up of these facilities will enable Petrobras to increase production, but at a lower cost. According to UBS, in the first quarter of 2018, lifting costs fell by 7% compared with the average cost the previous year. Currently, pre-salt production has a lifting cost of around US$ 7/bl, including a production system leasing cost of US$ 2/bl. In contrast, post-salt basins have an average cost of US$ 10-11/bl. The breakeven cost of deep-water projects has also fallen to US$ 29/bl.
There are some concerns, though, that Petrobras will struggle to maintain its production targets over the next few years. Production shortfalls are a significant risk factor for Petrobras in
2019 and beyond. The 2023 production target, which equates to 6% annualized growth rate from the 2018 baseline, is quite aggressive compared to the 3-4% range that we anticipate, says Muhammed Ghulam, senior associate at Raymond James, a US investment bank.
The next priority for the government is to resolve the Transfer of Rights dispute with Petrobras so Brazil can launch the surplus-volume auction later in the year. Vincente Neto, an analyst at
Brazilian bank Bradesco expects that, after a protracted period of negotiations with the government, Petrobras will end the talks as net creditor: We believe we might have a conclusion by the end of April. Our base case is the government having to reimburse Petrobras $8bn. The auction is already scheduled for 28 October.