Petrobras: Dead In The Water

Brazil’s oil giant Petrobras (PBR) on Friday postponed the disclosure of its new business plan so that it could evaluate the impact of the global financial crisis.

The global credit crunch has smashed the deepwater building program at Petrobras. Whether it can pay for current orders is questionable. The Brazilian state investment council voted to shore up PBR in the short term. That suggests Petrobras has cash flow problems now — without the presalt development cost expected to total $500 billion over the next decade.


We noted previously that Petrobras was borrowing to pay dividends, but the precipitous drop in oil price hit its business plan hard. Suddenly, a $20 billion bond issue is impossible.

PBR’s published capex budget covered construction of huge new petrochemical and oil refineries, thermal energy network, maintenance and overhaul of P-17 and P-23 platforms, drillship and FPSO charters, and construction of the new Rio Grande shipyard. It has contractual commitments in Africa and deepwater GOM. Zero $ capex was budgeted for production of Tupi-Carioca.

Funding the presalt play was supposed to be easy. Modec is building three FPSOs for Tupi pilot production, which Petrobras agreed to pay $400,000 per day for 5 years with deferred option to buy at $1 billion each. $5 billion total, no cash upfront. Jurong Shipyard in Singapore is funding another FPSO for Roncador field, $1.6 billion plus operating cost. Eight more FPSOs are supposed to be magically assembled on a crash schedule at Rio Grande when it’s completed and if they somehow pull together a trained local workforce and 3000 new homes on government subsidies.

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