Español








Very usefull links



Petroleumworld
Bookstore



Institutional
links


OPEC



 


Petroleumworld
Business Partners

 


IRAQ OIL THE FORUM


Blogspots
recomended

caracas chronicles

Gustavo Coronel

Iran Watch.org

Venezuela Today

Le Blog des
Energies Nouvelles

 

 

Editorial-Opinion

 

 

Robert Campbell :  Petrobras admits
everything broken but the model

 

 

For a long time, Brazil's Petrobras was the state-run oil company that was supposed to show other state-run oil companies how it was done.

But burdened with unrealistic government policy, Petrobras is starting to look as broken as some of the industry's laggards.

Years of missed production targets, ballooning costs and investor suspicion that an activist central government will short-change equity holders has turned the former stock market darling into a dog.

So at the very least, the company's latest business plan presentation on Monday is refreshing for its candor. Gone is all the bluster about eclipsing the super majors that figured prominently beforehand.

Instead, slide four (of 89!) comes devastatingly clean on nine years of "unrealistic" targets for production growth.

Slide six discloses an eye watering blowout in costs for its new refinery in Pernambuco. The plant, which will now not process any oil until late 2014, is expected to cost as much as $20 billion, up from initial estimates of $2.3 billion.

But after those doses of brutal honesty, Petrobras retreats into a defensive stance, hitting back at criticisms of other elements of Brazil's oil policy.

For instance Brazil's insistence on higher local content in new offshore drilling rigs and production facilities has been blamed for previous delays and cost overruns, in part due to the inexperience of Brazilian industry with these types of projects.

Petrobras tries to deflect these charges, noting it has suffered significant delays in the delivery of rigs ordered from overseas shipyards too.

Similarly, criticism that Petrobras loses too much money on local fuel sales due to low prices are rebutted by a chart that at times, such as in 2009-10, Petrobras has profited from this scheme because its prices were above world levels.

STILL UNREALISTIC

As a result of its soul-searching, Petrobras has scaled back its production goals. While a disappointment in terms of future non-OPEC oil production, Brazil's inability to meet its own targets had always called past forecasts into question.

The company now sees its oil and natural gas liquids output in Brazil reaching only 2.5 million barrels per day in 2016, down from a previous forecast of more than 3 million bpd by 2015.

This slower growth curve is probably more reflective of the reality on the ground, given the huge challenges associated with developing Brazil's massive, but remote "pre-salt" discoveries in the deep waters of the Atlantic Ocean.

Yet despite the more pragmatic short term approach, the long-term trajectory of production growth inexplicably accelerates.

This acceleration is surely more the product of wishful thinking despite all the happy talk about standardized projects and streamlined costs.

After all, the presentation goes on to show progress reports for 10 different offshore production facilities, all of which are behind schedule.

As such, the new 4.2 million bpd production goal for 2020 should continue to be viewed with scepticism, even if it is more than 700,000 bpd lower than last year's inflated target.

Similarly the financial disaster at the Pernambuco refinery is promised to be a one-off, with future refining plans held back for renewed study.

But here again, what investors are promised is simply better management and better implementation. The actual plan, and the means chosen to carry out the plan are never really questioned.

STATE MODEL

The root of the problem in Brazil's oil industry lies in the state-directed model that has been adopted.

Petrobras has become, for lack of a better term, a national development agency. The company has agreed to not only pursue Brazil's national content demands, but is working to exceed them regardless of cost or efficiency concerns.

Steps taken towards liberalizing the industry after 2000 were reversed once the massive pre-salt oil discoveries inflated the egos of Brazilian politicians.

Petrobras was given a legally entrenched role as sole operator of the most promising fields and allowed, or encouraged, to extend its dominance in the domestic refining sector.

The result is huge demands on Petrobras' management to develop and supervise practically the entire industry. Much of the finance for this development also has to come from the company.

At the same time its dominance of the domestic fuel sector has left it vulnerable to politicians seeking to tamp down on inflation through price controls.

None of this is meant to take anything away from Petrobras' achievements. The company's engineering prowess is well known, as are its accomplishments in offshore oil exploration and production.

Nor is this to say Brazil should abandon national content rules or other regulations aimed at fostering local industry.

But Brazil's oil problem is greater than mere management missteps at one company.

The government has to choose if it wants development at all costs, including the risk of more boondoggles like Pernambuco, or whether it wants an industry that is sustainable.

It has to decide whether it wants to go down the path of other state oil companies, like Mexico's Pemex, whose revenues subsidize all sorts of inefficient industries and interest groups, or not.

For the broader oil market, Brazil's problems are the oil market's problems. The country is still expected to be a major source of oil production growth over the next two decades.

But until the existing model of development is overhauled, delays and disappointment remain the likely outcome. 


Follow us and post your comments: in Twitter Facebook

 

Robert Campbell is a Reuters market analyst. The views expressed are his own . Petroleumworld does not necessarily share these views.

Editor's Note: This commentary was originally published by Reuters, on June 25, 2012 . Petroleumworld reprint this article in the interest of our readers.

All comments posted and published on Petroleumworld, do not reflect either for or against the opinion expressed in the comment as an endorsement of Petroleumworld. All comments expressed are private comments and do not necessary reflect the view of this website. All comments are posted and published without liability to Petroleumworld.

Use Notice:This site contains copyrighted material the use of which has not always been specifically authorized by the copyright owner. We are making such material available in our efforts to advance understanding of issues of environmental and humanitarian significance. We believe this constitutes a 'fair use' of any such copyrighted material as provided for in section 107 of the US Copyright Law. In accordance with Title 17 U.S.C. Section 107. For more information go to: http://www.law.cornell.edu/uscode/17/107.shtml.

All works published by Petroleumworld are in accordance with Title 17 U.S.C. Section 107, this material is distributed without profit to those who have expressed a prior interest in receiving the included information for research and educational purposes.Petroleumworld has no affiliation whatsoever with the originator of this article nor is Petroleumworld endorsed or sponsored by the originator.

Petroleumworld encourages persons to reproduce, reprint, or broadcast Petroleumworld articles provided that any such reproduction identify the original source, http://www.petroleumworld.com or else and it is done within the fair use as provided for in section 107 of the US Copyright Law.

If you wish to use copyrighted material from this site for purposes of your own that go beyond 'fair use', you must obtain permission from the copyright owner.
Internet web links to http://www.petroleumworld.com are appreciated

Petroleumworld News 06/29/2012

 

Follow us in Twitter

And post your comments in our
Facebook site


Petroleumworld welcomes your feedback
and comments, share your thoughts on this article,
your feedback is important to us!

We invite all our readers to share with us their views and
comments about this article, write to editor@petroleumworld.com

Copyright© 1999-2010 Petroleumworld or respective author or news agency. All rights reserved.

We welcome the use of Petroleumworld™ stories by anyone provided it mentions Petroleumworld.com as the source. Other stories you have to get authorization by its authors

Send this story to a friend Any question or suggestions,
please write to: editor@petroleumworld.com

Best Viewed with IE 5.01+Windows NT 4.0, '95, '98, ME,
XP, Vista, W7 +/ 800x
600 pixels

 


TOP


Editor:Elio Ohep F./
Contact Email: editor@petroleumworld.com

Contact:
editor@petroleumworld.com/ phone: Office (58 212) 635 7252,
or Cel (58 412) 996 3730 or
(58  412) 952 5301


CopyRight © 1999-2010, Elio Ohep F. - All Rights Reserved. Legal Information

- CCS Office Tele
phone/Teléfonos Oficina: (58 212) 635 7252

PW in Top 100 Energy Sites


Technorati Profile

Fair use notice of copyrighted material:

Legal Information

This site is a public free site and it contains copyrighted material the use of which has not always been specifically authorized by the copyright owner.We are making such material available in our efforts to advance understanding of business, environmental, political, human rights, economic, democracy, scientific, and social justice issues, etc. We believe this constitutes a 'fair use' of any such copyrighted material as provided for in section 107 of the US Copyright Law. In accordance with Title 17 U.S.C. Section 107, the material on this site is distributed without profit to those who have chosen to view the included information for research, information, and educational purposes. For more information go to: http://www.law.cornell.edu/uscode/17/107.shtml. If you wish to use copyrighted material from this site for purposes of your own that go beyond 'fair use', you must obtain permission fromPetroleumworld or the copyright owner of the material.