Petrobras spending plans poised for sharp cut

Brazil's state-controlled Petrobras is under intense pressure to revise its $75.7bn spending plan for 2020-24 as global oil prices plummet below the pre-salt breakeven price.

The company has said pre-salt oil production is viable at around $35-$45/bl, Ice Brent futures have now spiraled below the $30/bl mark to levels not seen since 2003 after the demise of the Opec+ agreement to restrict production. Atlantic Basin crude grades, including Brazilian Lula, are struggling to compete on price in China because of the flood of supply from the Mideast Gulf.

Any adjustment to Petrobras' spending plans would likely impact the company's upstream growth trajectory, which is anchored on giant pre-salt reservoirs in the Santos basin. The firm projects 2020 domestic output of 2.2mn b/d, just above the 2019 level.

Brazil, a growing non-Opec oil supplier, is officially forecast to produce a total of 5.5mn b/d by 2029, up from around 3mn b/d at present.

The oil price collapse is compounded by the rapid spread of coronavirus inside Brazil, where a growing number of senior government officials, including mines and energy minister Bento Albuquerque and senate president Davi Alcolumbre, have now tested positive.

Petrobras announced yesterday that half of its administrative staff would work from home to limit contagion.

The Sindipetro NF oil workers union, which represents workers in the offshore Campos basin, is urging Petrobras to suspend embarkation at offshore platforms pending the arrival of medical supplies and staff.

Lagging behind

Brazil has lagged behind most other Latin American countries in adopting strict measures to combat the spread of the deadly virus. More than 350 cases have been recorded in Brazil, the highest in the region. Anti-government protests have started to erupt in Sao Paulo and other cities.

Bolsonaro declared a state of catastrophe today, and closed the border with Venezuela, where the disease is facing little resistance. The catastrophe declaration, which gives the government greater leeway to act, still requires congressional approval.

Earlier this week the economy ministry rolled out a R147bn ($29bn) stimulus package aimed at shielding Brazil's economy. And today, infrastructure minister Tarcisio de Freitas unveiled support for airlines, including Gol, Latam and Azul. The carriers will now have more time to refund passengers for cancelled flights and can defer payment of airport fees. Airport management companies can also delay payment of concession fees. And the government will make low-cost lines of credit available to airlines to cover short-term working capital needs.

Brazilian airline association Abear said domestic flight demand has fallen 50pc.