Petrobras slashed its 2020 production target by 11% last week and said its developments, mainly offshore, will cost $141.8 billion, 11% more than planned. According to Bloomberg, the Rio de Janeiro-based company has had the biggest drop in production per share over the past two years of the 10 biggest oil companies after a $70 billion share offering in 2010.
Still according to Bloomberg, Petrobras has lost 19 percent for investors this year in U.S. dollar terms and is “the worst investment among the world’s biggest oil companies this year as Brazil’s state-controlled producer suffers delays and cost overruns developing the largest oil finds in more than a decade.”
Here is Itau BBa had to say about it:
“Petrobras has confirmed the approval of its 2012-2016 strategic plan, totaling USD 237 billion (5% higher than the previous plan) and with significantly lower production targets… our expectation (and the market’s) was for a reduction in total capex, even if small. Lower production, higher capex and no mention to the long-awaited increase in Diesel and Gasoline prices will likely weigh on the stock’s performance and raise concerns about the company’s ability to fund this plan without risking its investment grade status.
… the plan seems to be grounded on a more realistic methodology and commitment to capital discipline…
… we have revised our model to incorporate the massive reduction in domestic oil production guidance, reducing our YE12 fair value estimate for Petrobras to BRL 26.5/PETR4 (USD 27.9/PBRA), from BRL 28.3/PETR4 (USD 32.3/PBRA), assuming USD 208.7 billion capex for the next five years. Our new fair value incorporates: i) the new production curve guidance until 2016 (the long-term discount to guidance remains virtually unchanged); ii) a USD 208.7 billion capex over the next five years (long-term capex based on our previous assumption of USD 60,000/bbl per day of additional production was also maintained); iii) 1Q12 results and lower forecasts for 2Q12; and iv) Itaú BBA’s new macroeconomic assumptions.
… In other words, despite the new management’s clear attempt to improve rationale, execution and capital discipline, there is limited upside to the current trading levels, no matter how depressed the stock is at this point.”