UPDATE 2-Petrobras ups exploration, production budget ahead of auctions

Fri Mar 15, 2013 9:12pm EDT

Related Topics

* Overall 2013-2017 plan little changed from year ago

* Exploration and production spending to jump 4 pct

* Refining spending cut 1.1 pct, biofuels cut 24 percent

By Jeb Blount

RIO DE JANEIRO, March 15 (Reuters) - Brazil's state-controlled oil company Petrobras announced a $236.7 billion five-year investment plan on Friday, beefing up exploration and production spending as it moves to boost output and prepare for its first oil rights auctions since 2008.

Planned 2013-2017 capital spending at the company, formally known as Petroleo Brasileiro SA was virtually unchanged from its $236.5 billion 2012-2016 plan announced last year, the company said in a securities filing.

Spending on drilling, well construction, oil platforms, ships and other exploration and production (E&P) investments aimed at developing giant new offshore reserves rose 4 percent to $147.5 billion, or 62.3 percent of planned total spending.

The $5.7 billion boost in E&P was made up for by steep cuts to politically popular but financially questionable spending on biofuels and new refineries.

Chief Executive Officer Maria das Graças Foster, who took over a year ago, needs new oil production and exploration areas to generate the cash needed to pay the company's soaring debt and to finance the plan, the world's largest corporate spending program.

Her job has been made difficult by anti-inflation policies that force Rio de Janeiro-based Petrobras to sell gasoline and diesel fuel at a loss. At the same time, she will need to gather up more cash as the company prepares to take part in Brazil's first oil-rights auctions in five years.

"They need new exploration areas to maintain their position in Brazil, and if Foster doesn't make some cuts there won't be any money left for the auctions," said Cleveland Jones, an oil geologist and energy researcher at the National Petroleum Institute at the State University of Rio de Janeiro.

"If they don't move faster on developing production, they won't have the cash needed to pay for all the investments they want to do," he added.

Brazil will auction areas in frontier offshore and onshore regions under the country's traditional concession contracts, that give winners ownership of any oil produced in exchange for a royalty.

In May, Brazil plans its hold its first ever production-sharing auctions for areas in the so-called subsalt polygon near Rio de Janeiro. Winning companies or groups will be those who offer the largest share of oil to the Brazilian government to sell on its own account. The polygon covers nearly all of the Campos and Santos offshore basins where about 80 percent of Brazil's oil and gas is already produced.

Ominously for Petrobras, the company will have to take a minimum 30 percent stake in each winning group and serve as the operator. Under these rules Petrobras could find itself being forced to spend money on projects it has insufficient cash to fund or no interest in developing.

To increase exploration and production spending the company cut expected refining spending 1.1 percent to $64.8 billion, the Petrobras statement said. It also cut cash for natural gas and energy projects 28 percent to $9.9 billion and fuel distribution and biofuel spending plans were cut by 11 percent and 24 percent, respectively.

The outlook for Petrobras Brazilian oil production in 2020 was unchanged at 5.2 million barrels of oil and natural gas equivalent a day, the statement said.

Petrobras expects the production of crude oil in Brazil to remain stable in 2013 at 2 million barrels a day - the same as in 2012.

For the first time in a decade the company did not give an immediate outlook for international output but said that it planned to spend $3.2 billion outside Brazil over the next five years, 90 percent of it in E&P.

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