Petrobras Lowers Production Target for 2019 in Search of Credibility

Petrobras Cuts 2019 Production Target in Search of a More Realistic Goal, According to Its President, Roberto Castello Branco

Petrobras has cut its production target for 2019, reducing its activities due to concerns about the lack of time the company will have until the end of the year to increase production.
The state-run company now expects production to reach an average of 2.7 million barrels of oil equivalent per day (boe), in line with 2018, discarding a previous forecast that it could grow to 2.8 million boe.

In comments to Reuters, Petrobras CEO Roberto Castello Branco said he still sees a chance, within the margin, for the new production target to grow this year and next. He stated that the lower objective is an effort to regain credibility.

“Transparency is always better,” Castello Branco said, appointed in January. “Petrobras has a history of promising and not delivering, and that’s why I made a point of lowering the target and setting a more realistic one.”
Along with the lower target, Petrobras reported in a press release that oil and gas production in the second quarter rose by 3.8% compared to the previous quarter, to 2.633 million boe.

The Pre-salt

The increase fell short of investors’ expectations for the company, which is dramatically ramping up production in the “pre-salt” fields. Petrobras’ preferred shares in São Paulo fell by 2.5% on Friday afternoon.

“Although today’s news poses some downside risk to our 2019 estimates due to delays in increasing production at some platforms in the Búzios field, such delays will likely not change the production outlook for 2020”, wrote analysts at Goldman Sachs, adding that they were maintaining their positive view on the stock.

Petrobras has put seven new platforms into operation since last year in the pre-salt fields Búzios and Lula, and in the post-salt field Tartaruga Verde. However, the company’s production has changed little compared to the previous year due to the sale of some assets and the decline in production in its mature fields.

Regarding the Campos Basin, which houses many of Petrobras’ mature assets, Castello Branco stated that the company intends to stabilize production, meaning it expects to maintain production around 1 million barrels per day.

Still, Petrobras’ president declared that the pre-salt area will be the company’s main growth tool. More than 60% of production in 2019 is likely to come from the pre-salt, he told Reuters. The lifting costs in the pre-salt fields are at US $6 per barrel, he stated.

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