Petrobras is Brazil’s biggest corporation, one of the largest in Latin America and, according to consultancy firm Petroleum Intelligence Weekly, the world’s eighth largest energy company.
Established in 1953, Petrobras has integrated, specialised operations in more than 25 countries in oil, gas and energy industry segments including exploration and production, refining, marketing and transportation, petrochemicals, distribution, biofuels, natural gas and energy. It is also the holder of advanced ultra-deep water oil production technology.
In 2007, the company had total proven reserves of 15 billion barrels of oil equivalent (boe), according to the Society of Petroleum Engineers criterion, as well as 15 refineries, thousands of kilometres (km) of ducts and nearly 6000 service stations. With average oil and gas production of more than two million barrels a day, most of Petrobras’ reserves are located at great depths in offshore basins.
Throughout its history, Petrobras has achieved positive results and solid financial indices, in addition to accelerated growth in production. Its 2007 EBITDA (earnings before interest, taxation, depreciation and amortisation) of R$25bn ($10.9bn) and net income of $13bn allowed the company to fund investments of $21bn and to pay $3.7bn in dividends to shareholders. These economic and operating results reinforce its solid and profitable growth profile.
In the past few years, Petrobras has made significant increases in its volume of investments, funded mainly by its own cash generation, but also via the banking and capital markets, and via export credit and financial project agencies.
Last September, Petrobras had a total indebtedness of $24.8bn, some 60% of which it obtained from the banking and capitals market and 20% via structured projects (see figure and table facing).
Project finance
Structured funding activities gained particular importance at Petrobras after the oil monopoly was broken in 1997, when the company started competing with other sector outfits and became subject to deadlines to develop the fields under its concession, pursuant to the norms set forth by the National Petroleum Agency (ANP).
Since 1998, financial structuring-based project development gained the spotlight, due principally to the economic conjuncture when oil prices were less than $10 a barrel and Latin America was suffering from economic instability.
As a result, Petrobras opted for direct fundraising for several of its projects, rather than seeking purely corporate fundraising. It must be emphasised, however, that for most of these projects, the guarantees that were offered ended up constituting the project in a ‘full recourse’ funding for Petrobras. Such funding helped the company to fulfil the investment goals outlined in its strategic planning, with no need to postpone investments that were considered as priority. Table 2 shows a few of the main projects which the company developed from 1998 to 2006.
As of 2003, in a more reliable, stable environment, Petrobras and the Brazilian economy underwent a period of strong economic growth. The company set successive profit and oil production records. The lower international interest rates and the attainment of investment grade status in 2006 significantly reduced the company’s fundraising costs and the requirements imposed on it in order to secure financing. As a result, it started prioritising corporate fundraising, which is faster and less bureaucratic, to supply third-party resource needs.
On the other hand, the new Brazilian regulatory model and the increased activities in the international segment put the company in the forefront of a new exploration mode, which involved partnerships with other companies. In these partnerships, Petrobras aimed to share both the business risk and the returns proportionately to the investments made by each of the participants.
As a result, its project financial structuring went on to focus on this type of joint-development project. The project finance mode priority was also changed. Petrobras started seeking to implement limited or non-recourse projects due mainly to the credit difference that exists in several of these partnerships and because it was not willing to carry the partners in each project.
Future perspectives
The business plan currently in effect at the company projects investments of $174.4bn in the 2009-2013 period, representing an annual investment average of $34.9bn in Brazil and $3.2bn abroad. This plan also recognises the need to raise $25bn in funds, approximately $5bn a year, although the 35% (net debt/net debt plus equity) leverage level allows for the flexibility of increasing the level of indebtedness”
The current plan takes in account the new investments that are needed to explore the pre-salt region. The discovery of Brazil’s biggest oil province, in the Santos basin, was announced in late 2007. It has the potential to put the country among the world’s largest in terms of oil and gas reserves and production.
Major discoveries
Tupi, the first area to be delimited, has recoverable volumes estimated at between five billion and eight billion barrels of light oil and natural gas. It is located 320km off the Brazilian coast, in pre-salt structures in the Santos Basin, at a depth of more than 2000 metres from the water line and under an additional 5000m of rock and salt. Between late 2007 and early 2008, another large field, Jupiter, was discovered in the same basin, reinforcing the expectations of the region’s potential.
As a result, in the coming years, Petrobras faces the challenges of executing investments laid out in its portfolio, prioritising the investments in the exploration and production area and seeking the development of the pre-salt reserves, in addition to maintaining investments in the other areas in which it performs, particularly downstream. To achieve this, it will have to count not only on the traditional forms of funding, but also search for new alternatives to face the unstable international scenario.
This article was contributed by Petrobras.Capital expenditure 2003-07
