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(Corrects eighth paragraph to say Petrobras’s production per share dropped 0.7 percent in the second quarter in story published on Aug. 13.)
Petroleo Brasileiro SA (PETR4), the world’s worst-performing major oil company this year, is heading for its first annual output drop since 2004 as offshore discoveries fail to counter declines at aging fields.
Petrobras, as the Rio de Janeiro-based company is known, had its first loss in more than a decade in the second quarter after output fell 1.1 percent amid declines at the offshore Campos Basin, maintenance-related shutdowns at platforms and the closing of Chevron Corp. (CVX)’s Frade field, where Brazil’s state- controlled oil producer has a minority stake.
“We’re not bullish on Brazilian production -- they’ve got massive declines,” Jamie Webster, the head of market intelligence at PFC Energy Inc. in Washington, which covers the global energy industry, said in a telephone interview. “It wouldn’t take much for them to have reduced production.”
Waning output and shrinking profit margins are putting a strain on Petrobras as it invests $236.5 billion through 2016 in a bid to more than double output. The company has been hit with delays of more than a year to get the equipment and rigs needed to develop the Americas’ largest oil discoveries in three decades amid regulations that require it to buy as much as 65 percent of its goods and services from local producers, Webster said.
“We must recover the operating efficiency and we have to be very disciplined regarding our scheduled maintenance and our stoppages,” Petrobras Chief Executive Officer Maria das Gracas Foster said in an Aug. 6 conference call. “We maintain our targets for 2012.”
Petrobras fell 0.2 percent to 21.03 reais in Sao Paulo. Before today it lost 7.1 percent for investors this year in U.S. dollar terms, the worst performance by oil companies with a market value of more than $50 billion, according to data compiled by Bloomberg. China Petroleum & Chemical Corp. (600028) has lost 6.6 percent, while Colombia’s Ecopetrol SA (ECOPETL) leads the ranking with a total return of 44 percent, the data show.
Petrobras’s average oil output in Brazil fell to 2.018 million barrels a day in the first half, compared with 2.022 million barrels in all of 2011.
The Brazilian company’s production growth per share fell 0.7 percent in the second quarter, according to Bloomberg Industries data.
Petrobras’s domestic output will drop 2.3 percent this year to 1.98 million barrels a day on average, Banco Itau BBA SA estimated in an Aug. 6 report. Petrobras has been pumping less than 2 million barrels a day since February, the month before Chevron shut Frade because of an oil spill. In April output fell to a 20-month low, Petrobras said on its website.
Petrobras’s press office didn’t reply to an e-mail and telephone call seeking comments.
“It’s basically Campos disappointing more than they ever expected,” Paula Kovarsky, an analyst at Itau, said in an Aug. 8 telephone interview from Sao Paulo. “Depletion and efficiency and the request for more maintenance are all hurting.”
Petrobras has failed to grow production fast enough from the world’s biggest discoveries since 2000 to compensate for declines at Campos. The company expects production to be little changed for the next two years, it said in a business plan published June 14. It cut its production goal by 11 percent to 5.7 million barrels a day in 2020.
“Deepwater fields generally have steeper decline rates than shallow water and onshore fields,” T.J. Conway, a research and advisory manager at New York-based Energy Intelligence Group, said in a telephone interview from Washington. “It’s a technical challenge, just maintaining production or mitigating production declines in the deepwater, and it has important implications for cash flow.”
About 80 percent of Brazil’s oil comes from the Campos Basin, where Petrobras began producing in 1977, according to the national oil regulator’s website, known as ANP. Six fields in Campos account for half of Brazil’s output, the International Energy Agency said in a report July 12.
Output at the basin fell 7 percent in the 12 months through June to 1.8 million barrels a day, according to ANP. It holds 9 of Brazil’s 10 biggest fields.
The world’s biggest producer in waters deeper than 1,000 feet (305 meters) is spending 5.6 billion reais to improve operations at its 35 platforms in Campos and mitigate the production declines, it said July 27. The company is also drilling deeper into the so-called pre-salt layer of the basin to connect new wells to existing infrastructure.
“They took another assessment of field life and the new stuff, and that’s what you’re seeing now,” Bob Fryklund, vice president of energy consulting firm IHS CERA Upstream Research, said in a telephone interview from Rio de Janeiro. “That’s why they came out with the new plan.”
Itau estimates depletion at existing fields will cut Petrobras’s output by an average of 205,000 barrels a day this year, which is only partially offset by output from new platforms and new wells in the Campos pre-salt.
“What’s clear is that they could be below target,” said Dany Rappaport, who helps manage 250 million reais at Investport in Sao Paulo. “The results were very weak.”
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