Petrobras board approves business plan

Jun 21, 2010 02:00 AM

Petrobras announced that its Board of Directors approved the 2010-2014 Business Plan, with investments totalling $ 224 bn, representing an average of $ 44.8 bn per year.
Based on macroeconomic and energy scenarios for the world and for Brazil, the investment portfolio and the company's projections were revised accordingly. The pillars of integrated growth, profitability, and social and environmental responsibility remain as the company's foundation, as it invests for sustainable performance in the domestic and international markets.

The 2010-2014 Business Plan foresees investments of $ 224 bn, of which 95 % ($ 212.3 bn) will be invested in Brazil and 5 % ($ 11.7 bn) abroad. The plan includes significant utilization of the domestic supplier market, with local content forming 67 % of total investment. This rate would signify annual purchases of some $ 28.4 bn in Brazil.
The planned investment for the next five years is 20 % more than the previous plan. In total, $ 31.6 bn will be directed to new projects, 62 % of which is earmarked for E&P ($ 19.7 bn).

Projected investments in Refining, Transportation, and Marketing are budgeted for $ 73.6 bn. The strategy of expanding refining capacity has been maintained, seeking to balance Petrobras's increasing oil production and growing product demand in Brazil with greater refining capacity. In addition the refining park is being upgraded to meet the product quality levels required by Brazil's regulatory framework.
The Plan foresees, in addition to the expansion of existing units, the start-up of the Abreu e Lima Refinery (Pernambuco-RNEST), the first Phase of Premium I, and of the first phase of the Rio de Janeiro Petrochemical Complex-Comperj, which was redefined in its initial phase to be a refinery with capacity to process 165,000 bpd into diesel fuel. With these investments, the feedstock processed in Brazil is expected to reach 2,3 mm bpd in 2014.

For the post-2014 period, the second stage of the Comperj, with capacity to process 165,000 bpd into base petrochemicals, and the Premium II Refineries, will contribute to achieving the target of 3.2 mm barrels of feedstock processed in 2020. Thus, the company will be prepared for the increasing demand for derivatives in the domestic market, projected to reach 2.4 mm bpd in 2014 and 2.8 mm bpd by 2020.
The investments in Petrochemicals are budgeted for $ 5.1 bn and will focus on the production of petrochemicals and biopolymers, preferentially via equity investments with partners, focused on Brazil, in a manner that is integrated with other company operations.

The Distribution business will receive investments of $ 2.5 bn, aiming to ensure the leadership in domestic distribution with a market share of 40 %, as well as continue its operations in product distribution abroad.
Now in the final years of a phase to construct a natural gas transportation infrastructure, to the Gas & Power segment will invest $ 17.8 bn. These investments will be directed to consolidating Petrobras's leadership in the Brazilian natural gas market, and ensuring marketing in the thermoelectric and non-thermoelectric markets. In addition, three new fertilizer plants to produce nitrogenates (ammonia and urea) will be built to increase the flexibility within the natural gas chain and the generation of electricity as well as add synergy with other activities of Petrobras.

The Biofuels segment will invest $ 3.5 bn to operate in biofuels production, logistics, and trade, and to participate in the value chain in Brazil and abroad. The strategy in this segment has been redirected to the acquisition of equity stakes in order for the company to more quickly become an important market participant, and thus ensuring the technological know-how necessary for the sustainable production of biofuels.
The Plan considers operating cash flow generation based on an average oil price of $ 80 for the period, below the average of projections from a range of consultants and official energy agencies. The target of average financial leverage of 25 %-35 % is unchanged. A public offering of shares is expected to maintain the capital structure and indicators sound. In addition to an equity offering; Petrobras will continue to seek debt funding from a variety of sources of funds in Brazil and abroad.

The expected Internal Return Rate (IRR) of the company's portfolio is approximately 14 % per year, considering the assumptions of the Business Plan. Under the Plan, the company has earmarked investments to overcome technological, operational safety, and human resource challenges. The Health, Safety, and Environment (HSE), Technology, Information & Communications (TCI), and Research & Development (R&D) areas will invest $ 11.4 bn in resources during the period.
In the Technology area, the business plan was based on three key challenges: Expanding the Limits, Adding value and Product diversification, and Sustainability.

In the Engineering area, the challenges will be overcome by reducing project complexity, using standardized solutions, and employing international metrics in our industrial facility designs to ensure our industrial competitiveness. The domestic content will help consolidate Brazil as a good and service supplier hub.
The Brazilian content is expected to represent approximately $ 28.4 bn per year of Petrobras's capex and will help to create a supply hub in Brazil.

Source / Petrobras
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