Brazil’s Petrobras lines up $224bn fields investment

Petrobras, Brazil’s national oil company, plans to invest $224bn between 2010 and 2014 as it begins to produce oil from its potentially vast deep water pre-salt fields, discovered in 2007.

The plan includes ramping up production from 2.7m barrels of oil and gas per day in 2010, to 3.9m bpd in 2014 and 5.4m bpd by 2020.

“No other oil company has plans for such a rapid increase in production of oil and gas as we do,” said Sérgio Gabrielli, chief executive.

To meet its target, Petrobras will need to raise $58bn during 2010-2014, assuming post-dividend revenues of $155bn.

Its financing needs will be met in part by a share issue, planned to take place as early as next month. Mr Gabrielli said it was too soon to put a figure on the size of the issue, although analysts said the group would aim to raise about $25bn from minority shareholders.

The capitalisation plan involves a complex operation under which the Brazilian government will sell Petrobras the rights to 5bn barrels of oil in the pre-salt fields, so called because they are trapped under several kilometres of sea water, rock and a hard-to-penetrate layer of salt.

The plan is designed to capitalise Petrobras and allow it to issue further debt while keeping its ratio of debt to equity at less than 35 per cent, regarded as the limit beyond which the company’s valuable investment grade credit rating would come under risk.

The $224bn to be spent under Petrobras’s new five-year plan is an increase of $50bn over the $174bn stipulated in its previous plan for 2009-2013.

Mr Gabrielli said spending on projects detailed in the previous plan would increase to $186.6bn and that additional spending under the new plan would include $31.6bn on new projects, of which 62 per cent would be on exploration and production.

This is the first five-year plan to include planned production of oil and gas from the pre-salt fields. It predicts production of 241,000 bpd from the pre-salt fields by 2014 and of 1.08m bpd by 2020.

The pre-salt fields are among the deepest oil and gas reserves in the world. Since the disaster involving BP in the Gulf of Mexico, fresh questions have been raised over operational challenges involved in deep water extraction.

Guilherme Estrela, Petrobras’s director of production, said the accident in the Gulf had no relationship to the depth of BP’s operations and that officials from Petrobras and the ANP, Brazil’s oil and gas industry regulator, had been sent to observe the situation. Mr Gabrielli said: “Prevention is the most important instrument. We need to reinforce our procedures and give more emphasis than we already do to meeting safety targets.”