Latin Finance - March/April 2012 - 33

Brazil petrobras CEO

CEO chair, investors have long shown a concern about the state imposing its own agenda over the company. Such issues have come to the fore ever since Petrobras’s jumbo $70 billion equity raise in 2010, a deal that included a $42.5 billion equivalent in stock to the government in exchange for rights to 5 billion barrels worth of oil reserves. “The questions about Petrobras have more to do with the government than with the CEO,” says Arnaldo Silva, equity portfolio manager at Beta Advisors in Rio. “The challenges will be the same in the short term.”

Challenges Ahead

Indeed, the company faces several hurdles in coming years. Gabrielli vacates the top job at a time when his replacement Asset Sales & Bonds will have to push the company to meet its ambitious cumulative Up to $149 billion of the required $225 billion will be derived average production growth from future profit flow. goal of 10% a year to reach A further $13.6 billion is Petrobas Stock Price (BRL) four million barrels a day in expected to come from Foster’s appointment sends shares higher 2015. the sale of production Investor concerns are and exploratory assets in 29 many, not least because Asia, minority ownership regulations designed to stakes in “non-core” assets, 28 ensure Brazilians benefit and the rights to some from the work surrounding receivables. the pre-salt development The company’s plans 27 are threatening to cause also depend on debt bottlenecks. These include financing, to the tune of up 26 requirements for domestic to $18 billion per year over subcontractors as well the next several years. This as the obligation to give is ambitious but few doubt 25 Petrobras a 30% stake in the oil company’s ability to any consortium operating in raise these amounts. 24 the pre-sale operations. Petrobras bettered a Analysts have resigned $6 billion bond offering 23 themselves to such policies, in January 2011, pricing 2-Jan-2012 9-Jan-2012 16-Jan-2012 23-Jan-2012 31-Jan-2012 and note that any rule a record setting $7 billion changes on this front would sale in February that Source: Economatica likely need to be pushed involved new three and through by the government five-year paper and well as itself rather than Foster who is already well aware of what it a reopening of existing 2021 and 2041 benchmarks. takes to run the company efficiently. “We expect a rougher capital market environment in 2012,” “The global industry needs to increase capacity to says Paula Martins, an analyst at Standard & Poor’s. “Petrobras accommodate all this demand and on top of that, most of this won’t have any problem issuing, even if there is difficulty equipment needs to be built in Brazil to fulfill the local content ahead.” Her agency sees credit metrics possibly deteriorating a requirement,” Maresti says. bit with the massive borrowing ahead, but improving once the The shop also cites a risk of deterioration in the performance discoveries are monetized of the refining and marketing segment, and unattractive With the departure of Gabrielli, some see this as an production sharing contract terms for future pre-salt appropriate moment for CFO Almir Barbassa to also step down development. after 38 years at Petrobras, but as of mid-February there had Rising costs are also creating some unease. Given Petrobras’s been no indication that he would make such a choice. focus on offshore production, it has high capex needs and Energy minister Edison Lobão has said there will be no forced leverage is steadily increasing. It will spend $225 billion this executive changes at Petrobras. decade in order to achieve a fourfold jump in deepwater José Alcides Martins replaces Foster as head of Petrobras’s production and to boost onshore distribution and downstream natural gas and power unit. José Miranda Formigli Filho was capacity. named as head of exploration and production, replacing The program includes some monumental offshore projects Guilherme Estrella, who is leaving the company. LF

such as a floating tanker terminal and gas liquefaction plant, part of a plan to more than double Brazil’s oil and gas output to six million barrels per day in oil-equivalent terms. The company’s finding and development costs rose 60% in 2010 to $14.38 per barrel of oil-equivalent for 2010 and should close higher in the final 2011 tally, according to ratings agency estimates. The company’s ambitious goals show in its capex of roughly $40 billion for 2011, the highest among regional peers. The high capex resulted in $9 billion of negative free cash flow during the first nine months of 2011 with $77.9 billion in debt. Petrobras’ total debt to proven reserves stood at $9.8 per barrel of oil equivalent, as of September 30.

March/April 2012

LatinFinance 33

Latin Finance - March/April 2012

Table of Contents for the Digital Edition of Latin Finance - March/April 2012