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Brazil's Petrobras boosts spending 13% to $84.1 billion in 2019-2023

Rio de Janeiro — Brazilian state-led oil company Petrobras will boost investment spending 13% to $84.1 billion over the next five years, with more than 80% of the cash targeting development of oil fields in the prolific subsalt frontier that will push domestic crude oil output to nearly 2.8 million b/d by 2023, the company said Wednesday.

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"The plan prioritizes deep water," Nelson Silva, Petrobras' executive director for strategy, said during a conference call with analysts and investors.

Petrobras' renewed focus on exploration and production in the 2019-2023 period should result in average production growth of about 5% per year, Silva said. Petrobras set an annual average domestic crude oil production target of 2.3 million b/d in 2019, which would reach 2.796 million b/d by 2023, according to the plan. That would be less than the 2.9 million b/d in 2022 forecast by the previous five-year plan covering 2018-2022.

The lack of substantial production growth despite nearly $10 billion in additional spending compared with the previous plan was attributed to expected delays in deliveries of several floating production, storage and offloading vessels, or FPSOs, that will be installed under the plan, Hugo Repsold, the company's director of production development, told analysts and investors. Petrobras discovered potential challenges and issues as projects matured, resulting in changes to the timeline, Repsold said.

The 2019-2023 plan, however, adds no new projects to Petrobras' development pipeline and effectively pushes back the startup dates for several FPSOs that were featured in the previous investment budget.

Petrobras now expects to install the FPSO P-68 at the Berbigao Field as well as the FPSOs P-76 and P-77 at the Buzios Field in 2019, the company said. The FPSO P-70 to be installed at the Atapu Field, meanwhile, was pushed back to 2020 from 2019. In 2021, Petrobras maintained the timeline for installation of the first FPSOs at the Mero and Sepia fields as well as a fifth FPSO at the Buzios Field.

New FPSOs planned for the Parque das Baleias complex and Marlim Field expected to be installed in 2021 as part of revitalization efforts in the Campos Basin were pushed back until 2022, Petrobras said. A second FPSO at the Mero Field, which is part of the Libra area that was the first subsalt area sold under Brazil's production-sharing regime in 2013, remained on schedule for installation in 2022, Petrobras said.

Petrobras also pushed FPSOs for the Sergipe-Alagoas Basin deepwater project and the Itapu Field to 2023 from 2022 previously, the company said. An FPSO for the second phase of the Marlim Field revitalization project was also delayed until 2023 from 2021 previously, Petrobras said.

"The investments focus on fields with high profitability and our strategic partnerships," Silva said. Petrobras, for example, expects accelerating production declines in the mature Campos Basin to ease as redevelopment work with Norway's Equinor advances at the Roncador Field.

Petrobras also increased exploration spending to $10.8 billion from $6.8 billion previously, reflecting the addition of several blocks at recent bid rounds and production-sharing auctions, Silva said.

MORE DIVESTMENTS

Petrobras expects to continue with divestment efforts, despite falling short of its 2017-2018 target of $21 billion in asset sales. The 2019-2023 plan outlines potential divestments and strategic partnerships totaling $26.9 billion over the five-year period, Petrobras said.

Silva noted that the company currently has an ample portfolio of assets in various stages of the sales process as well as several significant deals that were suspended by a Supreme Court injunction. Petrobras expects the legal climate to improve under the market-friendly administration of President-elect Jair Bolsonaro, eliminating many of the hurdles that undermined sales efforts in 2017-2018, Silva said.

Petrobras, however, reaffirmed its intention under the new plan to reduce its participation the refining segment as well as exit LPG distribution and the production of fertilizers and biofuels, Silva said. One of the biggest outstanding divestment deals is the potential sale of four refineries in two separate packages representing about 40% of Brazil's installed processing capacity. The sale is currently suspended by the Supreme Court injunction.

The company plans to make the refinery package in the northeast more attractive to potential investors, Silva said. Petrobras will spend about $1.3 billion to complete the second 160,000 b/d refining train at the Refinaria do Nordeste, also known as RNEST or Abreu e Lima. In addition, Petrobras expects to increase treatment capacity by about 98,000 b/d to help increase production of low-sulfur diesel.

Petrobras' 2019-2023 investment plan also forecast a slight decline in oil prices from current levels to $66/b in 2019 and $67/b in 2020 before rising gradually to $75/b in 2022 and 2023, the company said. In addition, Brazil's real currency is expected to remain fairly stable with the US dollar in coming years at about Real 3.60/dollar in 2019 and 2020 before weakening to Real 3.80/$1 in 2023, the company said.

-- Jeff Fick, newsdesk@spglobal.com

-- Edited by Richard Rubin, newsdesk@spglobal.com