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Petrobras to cut 5-year investment plan by one-fifth to US$80b
[RIO DE JANEIRO] Brazil's Petrobras will slash its five-year investment plan by about one-fifth next month as low oil prices, massive debt and fallout from a corruption scandal hobble its ability to fund offshore projects, two sources helping draft the plan told Reuters.
The state-led oil company's capital spending program will fall to about US$80 billion in the 2016-20 period, an average of about US$16 billion a year, said the sources, who requested anonymity because the plan is not final.
If approved, it would be the smallest five-year investment program for the company, formally known as Petroleo Brasileiro SA, since 2006 and mark the latest in a rapid succession of downward revisions.
It would be roughly 20 per cent smaller than the US$98.4 billion plan announced in January, which was the third downward revision of Petrobras' US$130 billion, 2015-19 plan unveiled last June.
The serial cuts underlined the dramatic downturn in Petrobras' prospects since it discovered some of the largest-ever offshore oil resources a decade ago.
The new plan would be only one-third of the US$235 billion, or US$47 billion a year, in projected capital spending under the 2012-16 plan, at the time the world's largest corporate spending program.
"Forget that. That Petrobras no longer exists, be it because of the economic situation, be it because of bad actions that killed the company," the first source said.
Petrobras' press office declined to comment.
Consensus around a plan of about US$80 billion has solidified in recent weeks as top executives recognized the depth of Brazil's worst recession in decades and lowered their expectations that oil prices would rebound this year, the source added.
The government's refusal to allow Petrobras to raise domestic fuel prices in line with world prices, an anti-inflation measure, helped drive up Petrobras' debt.
A widespread price-fixing and political kickback scandal has driven up costs, delayed projects and shattered the company's relationship with investors. More cuts may be in the offing.
"This isn't just about oil prices, it's about years of poor management and poor project execution too," the second source said.
"Petrobras' ambitions may have to be scaled back even more if it wants to stay alive."
Average annual spending under the 2016-20 plan is expected to be around US$16 billion, the sources said. Spending could trend as low as US$15 billion some years, one source said, especially if efforts to sell assets and reduce its US$130 billion of debt, the world oil industry's largest, are unsuccessful.
Petrobras hopes to raise US$14 billion this year by selling oil fields, refineries, gas pipelines and other assets.
Despite the ambitious plan, few assets have been sold. Petrobras expects to receive tenders for a gas network in Brazil's industrialized southeast on Tuesday, but other sales seem stalled.