Petrobras, at 60, defines its plans for the future

Brazil’s largest company - third largest in the world in assets, fourth in net income and market value and tenth in the production of oil - Petrobras has contributed toward the industrialization of the country and now wants to raise Brazil to the status of a global power in energy

On turning 60, Petrobras celebrates undeniable advances that it has made in the production of petroleum, seeks partners for pre-salt layer exploration initiatives and invests firmly in technology and new refineries. If all the company’s projects that involve investments of US$ 236.7 billion are completed, the company will double in size and reach self-sufficiency in 2020. That means the company will more than double its production by the end of the decade. Petrobras will leap from the current 2 million barrels produced daily to 4.2 million barrels per day - an increase of 110%. It’s an ambitious goal considering that, over the same period of time, worldwide production of oil is expected to grow around 10%. If one considers the production of oil and natural gas by Petrobras and its associated companies, the leap is even greater: a rise from its current 2.2 million barrels of oil equivalent (BOE) to 5.2 million in 2020 - i.e. an increase of over 150%.

During the period, the company will also reach self-sufficiency in oil refining in Brazil. When the new refineries (Abreu e Lima/PE, Premium 1/MA, Premium 2/CE, and COMPERJ/RJ) that are under construction or about to go into operation are completed, the company will also nearly double its refining capacity, rising from the current 2.1 million barrels per day to 3.6 million barrels per day.

Although the Campos Basin, discovered in the late 1970s, accounts for approximately 80% of the nation’s production, the Santos Basin pre-salt layer is the region that generates higher expectations and should become the main region responsible for the increase in production in the coming years. Fifty-three discoveries were made in Brazil in the last 14 months. Fifteen of these discoveries were in pre-salt areas alone - at depths that reach 7000 meters. Petrobras reserves have the potential to double in size and reach 31.5 billion barrels of oil by the end of the decade. According to the president of Petrobras, Maria das Graças Silva Foster, the volume of investments in research and development have been significant in the last twelve years and important toward achieving the goals in this area. “During this period, investment in the basin grew 18.3% per year and in 2012 reached US$ 1.1 billion,” the executive discloses. If in calculating we include the estimated reserves for the ‘Libra’ oilfield, (as much as 12 billion barrels), with its auction scheduled for October 21st, the leap is even greater. We should further remember that regardless which consortium wins the auction, Petrobras will have at least a 30% participation share under the production sharing scheme.  In addition, it will be possible for the company to export 1.4 million barrels of oil daily in 2020. A significant volume considering that major oil exporting countries such as Iran, Venezuela and Angola send close to 1.8 million barrels of oil per day abroad.

In order to achieve these goals, Petrobras will have to set in motion 947 projects that are included in the company’s ‘Plano de Negócios e Gestão’ (PNG - Business and Management Plan) 2013-2017 and that will consume approximately US$ 236.7 billion (around R$ 525 billion) over the next five years or US$ 47.3 billion per year. Of the total to be invested, US$ 207.1 billion are being employed in implementation and US$ 29.6 billion in projects under evaluation. When we consider the level of investment by the company since 2000 - which has been growing 21.5% per year on the average-, the company’s entire plan will not be impossible to fulfill. In the last five years alone, the total amount of funds invested meant an annual average of US$ 39 billion, reaching US$ 42.9 billion in 2012. Of the projected total in the company’s business plan, US$ 147.5 billion will go toward exploration and production ventures. For the supply area - which involves refining, petrochemicals, supplying the internal market, ethanol logistics and fleet expansion - investments are estimated at US$ 64.8 billion. Amounts of investment for projects in other sectors are: gas & energy, US$ 9.9 billion; international, US$ 5.1 billion; biofuels, US$ 2.9 billion; distribution, US$ 3.2 billion; engineering, technology and materials, US$ 2.3 billion and other areas (financial, strategic, corporate and services), US$ 1 billion.

There is also news for the short term. With the nine production units that are being established this year in Brazil, Petrobras will have an increase of one million barrels of oil per day in its installed capacity as early as next year. This represents an increase of 50% in the company’s current production capacity. It is expected that actual production will reach around 2.2 million barrels per day (bpd) in 2014, representing an increase of 10% compared to what is expected to be produced this year. This increase will be important to meet the significant growth in the country’s internal demand for petroleum products; well above the world average. Between 2000 and 2012, there was an increase of 73% in gasoline consumption in the country, while the rise in the world was 17%. Domestic consumption of diesel grew 52% versus 31% in other countries over the same period. As for jet fuel (kerosene), demand was even stronger: in Brazil growth was 58% while world demand fell by 3%. This new production will give the company extra wind to make good on the investments that are required to achieve its Business and Management Plan (PNG 2013-2017) - mainly for investment in pre-salt layer exploration.

In Petrobras’ balance of trade, the company exports part of the heavy oil it produces and imports light and medium oil to compose the ideal mix of types of oil for the production of derivatives suited to the country’s internal demand. That's because most of Brazil’s production presently consists of heavy oil. In 2012, Petrobras produced two million barrels of oil per day in the country and exported 548,000 barrels per day of oil and oil products, of which 364,000 barrels/day were of crude oil. For 2020, the production of oil alone should reach 4.2 million barrels per day for a projected consumption of 3.4 million barrels/day, which indicates an exportable surplus of 820,000 barrels per day.

An extra challenge for Petrobras is reconciling the large volume of investments that are required with the policy of price control of gasoline and diesel fuel established by the government, which holds back adjustments in prices to avoid putting pressure on inflation rates. This means the company has to balance itself off when international market prices for oil climb, putting pressure on the company’s cash and usually increasing its indebtedness beyond what was established in the business plan. Market estimates reveal that the gap in the prices of gasoline and diesel that are imported and marketed by Petrobras on the domestic market is around 20%. The company is operating under the assumption that there will be an adjustment in price by the end of 2013, but it should not exceed 5% for the final consumer (or 10% at the refinery) - the same percentage applied at the beginning of the year.

Main projects

To address the challenge of doubling its production capacity in seven years’ time, Petrobras has the largest exploration portfolio and the most robust and diversified project portfolio among major oil and gas companies on the planet. By 2020, the company is expected to install 38 ‘Unidades Estacionárias de Produção’ (UEP - Stationary Production Units), as their oil platforms are called, to increase the volume of gas and oil extracted today. Outstanding among the main works in the exploration and production segment are the P-63, recently finished at the Honório Bicalho shipyard in Rio Grande (RS), which is being installed in the Papa Terra oilfield in the Campos Basin (post-salt layer field) and will have the capacity to produce 140,000 barrels of oil and one million cubic meters of natural gas daily. Also for the Papa Terra oilfield, the first Tension Leg Wellhead Platform ever built in Brazil - the P-61 - will begin operating by the end of the year. This platform will be able to process up to 140,000 barrels of oil and one million cubic meters of gas per day.

In mid-September 2013, work was concluded on the P-55 semi-submersible platform. The platform will be installed in the Campos Basin in the Roncador Oilfield (post-salt layer) - one of the company’s largest fields. Weighing 52,000 tons and with 10,000 m² in area, the P-55 is the largest semi-submersible platform built in Brazil (with a rate of 79% in domestic content) and one of largest of its kind in the world. It will begin producing in December 2013. The platform will have the capacity to produce 180,000 barrels of oil and treat four million cubic meters of gas per day. The platform will be anchored at a depth of about 1,800 meters and will be connected to 17 wells - eleven of which for production and six for water injection. Exportation of oil and natural gas from P-55 will be done via subsea pipelines attached to the unit. Another important project for this basin is the P-58 platform, in the area of production known as ‘Parque das Baleias’ (post-salt layer). The platform will have a capacity of 180,000 barrels of oil and six million cubic meters of gas per day. The installation of P-58 is expected to be concluded by the end of the year.

Expected to be concluded in 2014 are platforms: P-62 - intended for module IV of the Roncador oilfield which will have a production capacity of 180,000 barrels of oil and 6 million cubic meters of gas per day; ‘Cidade de Ilha Bela’ FPSO (Floating Production, Storage and Off-loading Unit), intended for the ‘Sapinhoá Norte’ project in the pre-salt layer of the Santos Basin, with a capacity of 150,000 barrels of oil and six million cubic meters of gas per day; and the ‘Cidade de Mangaratiba’ FPSO, to be installed in the ‘Lula - Iracema Sul’ project in the pre-salt layer of the Santos Basin, with a capacity of 150,000 barrels of oil and eight million cubic meters of gas per day. Work is also underway to convert the P-74; the first platform that will go to the ‘area for assignment of rights with compensation’ (“área de cessão onerosa”).

The conversion of the a Very Large Crude Carrier into the P-74 FPSO includes the inspection of plates, complete replacement of the original equipment and the manufacturing and installation of 13,000 tons of new structures that are required for assembly of the modules, production lines and the new anchoring system. At the end of the hull conversion phase, the modules of the plant for production and processing of petroleum and gas will be assembled onto the units and their systems will be integrated. This is the first great project to be undertaken by the Inhaúma shipyard since it resumed operations. As is being done for the P-74, Inhaúma is also where the work will be done for the conversion of the other three platforms (P75, P-76 and P-77) that are intended for the fields under the terms of ‘assignment of rights with compensation’, in the pre-salt layer areas of the Santos Basin. Each platform will have the capacity to produce up to 150,000 barrels of oil and to compress 7 million cubic meters of natural gas per day.

Refinaria ‘Abreu e Lima’ (RNEST - Refinery of the Northeast)

Petrobras’ Business and Management Plant (PNG) calls for the investment of US$ 64.8 billion in works for the area of supply, with approximately US$ 33.3 billion of that investment going toward projects for enlargement of the Refining Park. Within this total, the main targets of investment are the ‘Abreu e Lima’ Refinery, also known as the ‘Refinaria do Nordeste’ (RNEST), and the first phase of the Petrochemical Complex of Rio de Janeiro (Comperj). The last refinery built in Brazil was inaugurated in 1980 in the city of São José dos Campos in the region known as the ‘Vale do Paraíba’. Nearly three decades later, Petrobras began construction on a new refinery in the Northeast, in the area of the ‘Polo Industrial de Suape’ (Suape Industrial Hub) in Pernambuco. The refinery was designed to process Brazil’s heavy oil that would otherwise be exported at prices lower than light oil. The unit will have a final capacity to process 230,000 barrels of oil per day in two phases of 115,000 thousand barrels per day of capacity each. With this refinery, Petrobras will meet the increasing demand for diesel - a fuel of greater value in the chain of petroleum products - that is still partly imported. The first phase is expected to begin operation in the second half of 2014 and the second phase in the first half of 2015.

Besides the RNEST, Petrobras has two other refineries at the design stage. The first is the Premium I refinery which will be built in the state of Maranhão. Once operational, it will be Brazil's largest in terms of capacity to process oil. The refinery will be able to process 600,000 barrels per day in two phases of 300,000 barrels/day each. The first phase is expected to go into operation in late 2017 and the second in late 2020. The other refinery being designed is Premium II which is to be built in the state of Ceará and will have a capacity to process 300,000 barrels of oil per day. The startup of operation of the Premium II refinery is scheduled for 2017 or 2018.

Complexo Petroquímico do Rio de Janeiro (Comperj - Rio de Janeiro Petrochemical Complex)

One of the main projects undertaken by Petrobras, COMPERJ marks the company’s return to making investments in the petrochemical industry. The project, as it was originally envisioned, considered a processing capacity of 165,000 barrels of heavy Brazilian oil per day for the production of basic petrochemicals. Subsequently, the market for oil changed registering increased demand for diesel and jet fuel, which led Petrobras to review the project. An additional module was included at the design phase targeting the production of basic petrochemicals and, in addition, diesel and jet fuel (kerosene) whose consumption has increased.

With that, the project will produce petrochemicals, as planned, and high-quality fuels. One of the competitive advantages of COMPERJ is its privileged located in relation to the consumer market for fuels and petrochemicals. That project is positioned on a geographical radius that allows it to serve the country’s key consumer markets - São Paulo, Rio de Janeiro, Minas Gerais and Espírito Santo. The startup of the phase one of the complex is planned for the first half of 2015 with 165,000 barrels of capacity. Phase 2, which is at the design stage, is scheduled for 2018.