Petrobras doubles production cut

Brazil's state oil firm Petrobras will double its production cuts to 200,000b/d of oil in response to oversupply in the international market related to the coronavirus pandemic and low oil prices.

The company had previously announced a 100,000b/d cut, but demand for oil products fell more than anticipated. Considering that in January the firm’s oil output reached 2.3Mb/d (million barrels per day), the reduction amounts to almost 9% of production capacity.

Petrobras said it will consider the market and operational conditions in the decision on which fields reduce production. It is certain, however, that most reductions will come from fields that are included in the US$20-30bn assets sales program.

The company is also mothballing high-cost platforms in shallow waters in Sergipe, Rio Grande do Norte and Ceará states. Petrobras had already announced cost-cutting measures and a 2020 capex reduction to US$8.5bn from US$12bn, as the focus shifts to increasing liquidity. In addition, it reduced operating expenses by US$2bn and personnel expenses by US$700mn with measures such as wage postponement and reduction of working hours.

“In the past, we were preparing the company to live at a lower price of US$40/b, but now we are preparing ourselves to live with a US$25/b scenario. Unless there is some unexpected event, we are not predicting a significant recovery in prices and we have to be prepared for the worst-case scenario,” CEO Roberto Castello Branco said in a conference call with analysts last week.

Transpetro, the firm’s transports subsidiary, also announced measures to reduce its cost structure by 507mn reais (US$96.7mn) in 2020, with cuts and delays in operating expenses and investments.

Petrobras still advances its divestment program. On Tuesday started the binding phase of the process to sell the Merluza and Lagosta fields in the shallow waters of Santos Basin. It also started the process to sell its 10% stake in gas transport unit NTS.

And on Wednesday Petrobras announced the renegotiation of a contract with Pará state gas distributor Compagas to supply 900,000m3/d in 2020 and 2021, and 350,000m3/d in 2022 and 2023. Other distributors are likely to follow suit due to the slowdown in economic activities and lower gas demand.