Petrobras cuts 2019 output target in push for 'credibility'

RIO DE JANEIRO: Brazil's state-run oil firm Petroleo Brasileiro SA cut its 2019 production target, sending its shares lower on concerns about how quickly the firm will be able to ramp up production.

Petrobras, as the firm is known, now expects output to average 2.7 million barrels of oil equivalent per day (boepd), in line with 2018, scrapping an earlier forecast that it could grow to 2.8 million boepd.

In comments to Reuters, Petrobras Chief Executive Roberto Castello Branco said he still saw a chance within the margin of the new target for production to grow this year and next. He said the lower target was an effort to recover credibility.

"Transparency is always better," said Castello Branco, who was appointed in January. "Petrobras has a history of promising and not delivering, and that's why I made a point of lowering the target and setting a more realistic one."

Along with the lower target, Petrobras said in a Friday securities filing that second-quarter oil and gas production rose 3.8% from the prior quarter to 2.633 million boepd.

The increase fell short of investor expectations for the company, which is dramatically ramping up production in "pre-salt" fields, tapping billions of barrels of oil beneath a layer of salt under the ocean floor far off the Brazilian coast.

Petrobras' preferred shares in Sao Paulo were down 2.5% on Friday afternoon.

"While today's news bring some downside risk to our 2019 estimates due to the delay in ramp up of production in some platforms in Buzios field, such delays will likely not change the production outlook for 2020," wrote Goldman Sachs analysts, adding they were holding their positive view on the stock.

Petrobras has brought seven new platforms online since last year in the pre-salt Buzios and Lula fields and post-salt Tartaruga Verde field. Yet the company's output is little changed from a year ago due to the sale of some assets and declining production in its more mature fields.

Castello Branco said the firm intends to stabilize production in Brazil's offshore Campos Basin, home to many of Petrobras' more mature assets. He said the firm hopes to keep production in Campos at around 1 million barrels per day.

Still, he said, the pre-salt area will be Petrobras' main growth play. Over 60% of 2019 production will likely come from pre-salt, he told Reuters. Lifting costs at the pre-salt fields are at a low $6 per barrel, he said.