brazil reduces oil production plans

[GRG55]

Re: In Related SA News

NEUQUÉN, Argentina — On the windswept Patagonian steppe, crews of roughnecks are drilling around the clock in pursuit of a vast shale oil reservoir that might be the world’s next great oil field.

But that ambition hinges on an improbable alliance between the American oil giant Chevron and Argentina, a politically volatile country with a history of hostility toward foreign investors. What brings them together is the dream of an enormous bounty from the field, called Vaca Muerta, or Dead Cow...

Dead Cow, eh?

[bpwoods]

Re: In Related SA News

[QUOTE=don;269368]

An Odd Alliance in Patagonia

[QUOTE/]

The last time I saw a photograph like this it was a b/w of a crossroads in the Ukrainian Steppe during WWII: it had multiple signposts for the many different German army units in the area. History rhymes, for sure!

"a politically volatile country with a history of hostility toward foreign investors ..." Would you blame them? Those so-called investors were there to loot the economy - and did so very successfully! And now they're back! Or does that only happen in The Terminator?

"Mrs. Kirchner’s embrace of Chevron is a striking demonstration of the lengths to which some governments, desperate for money .." I believe, that in Political Science circles, its known as Realism. Expect more of it.

"Ali Moshiri, president of Chevron’s Africa-Latin America Exploration and Production, said of Vaca Muerta in an interview. “In our business risk is part of the equation.”". Nice one Ali! Risk on - for the little folk. Risk off for us big folk!

" ... reflecting a vital need by big oil companies to find new oil reserves even in the most politically unstable places [my emphasis]" That's refreshing. Now who would be carrying the risk for all this? Ali? Any comment?

"Local opposition among environmentalists and Mapuche Indians remains fierce." Those revolting Nimby types, again! Now tell me this, and tell me no more. The NY State Government has just announced that they have 'discovered' a vast shale reservoir - billions and billions of the stuff - directly under Central Park. Fracking will commence immediately! Yes? It will in its glue!

"Facing a potential financial crisis, the Argentine government reversed course on energy policy ..." Realism again. I think George Bush II behaved something like this about US energy policy when the administration was asked, in the nicest possible way, to please endeavour to curtail emissions from their many coal-fired electricity generating plants.

OK, so what new here? I hope its only a dead bovine and not dead people.

[GRG55]

Re: brazil reduces oil production plans

Petrobras is one of the more competent and capable NOCs, but still subject to tremendous political influence and pressures. That's not usually helpful.

If Mr. Gabrielli, who apparently believes that developing the Santos Basin ultra-deepwater fields is some sort of guaranteed winning lottery ticket, is indicative of the thinking in the Petrobras boardroom then that company will in the not too distant future be a widows and orphans short.

...Mr. Gabrielli, the Petrobras president, argues that the government has good reasons for wanting to limit foreign participation. In 1997, oil prices were much lower and Brazil’s economy was struggling. Today, Brazil has more than $220 billion in foreign reserves, oil prices are higher and Petrobras has become the fourth biggest company in the Americas.

“The financial condition is completely different,” Mr. Gabrielli said. And the development of the new fields, once seen as risky, “now is a winning lottery ticket.”...

What with QEⁿ, it took longer than expected, but once again we discover that just like gravity, what goes around, comes around

Jim Chanos Says Petrobras is a ‘Scheme, Not a Stock’

October 20, 2014, 5:39 pm

STEPHANIE RUHLE, BLOOMBERG: Jim, we will get to talk about China, but you just left the stage. You have been followed out here by attendees talking about your big idea, Petrobras. Talk to us.

JIM CHANOS, FOUNDER, KYNIKOS ASSOCIATES: Well, I guess we’re going to talk about one emerging market situation first. I gave a presentation inside to the Robin Hood folks on an idea we’ve been involved with on and off for the last couple years, but it was timely because of the upcoming election...

...RUHLE: Why? It is so tied to Dilma Rousseff.

JIM CHANOS: Well it is, and that’s the interesting thing. Every time Dilma’s poll numbers go up, Petrobras stock goes down. And every time Neves’s numbers go up, Petrobras stock goes up. The problem is it’s tied to Dilma. She was the chairwoman of this company. There’s been a number of investigations and – and scandals swirling the company – around the company. And we’re just not sure that even if Neves wins he’s going to really be feeling all warm and fuzzy toward this creature. Having said all that, the economics are just so poor at Petrobras that we really have called it a scheme, not a stock.

RUHLE: A scheme. Do you believe they misled investors back in 2010 when they did the IPO?

JIM CHANOS: Well we did – there was a slide in our presentation where we looked at the company’s projections. They keep – these five-year plans that they keep revising. And suffice it to say that if you look at it on the table, they have been a tad too optimistic down through the years by a lot.

RUHLE: But is that enough to call it a scheme?

JIM CHANOS: Well, no. The problem is is that in fact the company is cash flowing about $25 billion, $26 billion, so-called EBITDA, and its CapEx annually is $45 billion, and another $5 billion of capitalized interest. So their – their gross cash flow is only covering half of their capital spending and capitalized interest, so they’re not covering their dividend. And in fact they’re having to borrow the shortfall, and they’re borrowing more than $20 billion a year. This is an enormous, enormous sink hole from a financial point of view.

RUHLE: So their expectation to double output by 2020 for you, laughable.

JIM CHANOS: Well they can double output by 2020. For the last handful of years, five years, production really hasn’t increased. And we put a chart up to show the Robin Hood folk. Despite this enormous capital expenditures and the fact that their big pre-salt (ph) field is now coming online, production hasn’t increased. And that’s disturbing...

...RUHLE: Batista saga, way too tied to the government. So are you saying this is just like that? Because many people think if Neves wins the stock will rally.

JIM CHANOS: Well that’s in fact what I think will be the opportunity. And that’s why I thought it was timely this week that if that’s what happens and if investors knee jerk run into the Bovespa and buy Petrobras because Neves wins, I think it’s a great entry point on the short side in this story because it doesn’t change the economies of the situation. And we pointed out today in our presentation that even – even if you gave this company Exxon’s margins both upstream – and I see your eyebrows – and downstream, it would still be break even cash flow.

RUHLE: Really?

JIM CHANOS: Yes.

[ProdigyofZen]

Re: brazil reduces oil production plans

Great catch GRG!

And now Saudi Arabia supposedly cut supply in September...

"Saudi Arabia, it appears, had enough of shooting itself in the foot for its American 'partners', and has admitted for the first time that it slashed supply in September. As Bloomberg reports,OPEC’s biggest producer cut supply to mkt by 328k b/d in September to 9.36m b/d, from 9.688m b/d in August, according to a person with knowledge of Saudi Arabia’s oil policy. Prices in September were flat admit this supply cut which suggests along with the build in EIA inventories seen yesterday that Saudi Arabia may have also been forced by global demand weakness to cut supply through October also."

[GRG55]

Re: brazil reduces oil production plans

Great catch GRG!

And now Saudi Arabia supposedly cut supply in September...

"Saudi Arabia, it appears, had enough of shooting itself in the foot for its American 'partners', and has admitted for the first time that it slashed supply in September. As Bloomberg reports,OPEC’s biggest producer cut supply to mkt by 328k b/d in September to 9.36m b/d, from 9.688m b/d in August, according to a person with knowledge of Saudi Arabia’s oil policy. Prices in September were flat admit this supply cut which suggests along with the build in EIA inventories seen yesterday that Saudi Arabia may have also been forced by global demand weakness to cut supply through October also."

If the Saudis are cutting supply in present circumstances it means someone, somewhere is undercutting Saudi's falling price. I doubt it is Russia...

[jk]

Re: brazil reduces oil production plans

If the Saudis are cutting supply in present circumstances it means someone, somewhere is undercutting Saudi's falling price. I doubt it is Russia...

any suspects?

[GRG55]

Re: brazil reduces oil production plans

any suspects?

Purely speculation on my part:

Perhaps Libya. The "new owners" of those oilfields only need to cover lifting and operating costs as they don't have any of their own capital invested in the exploration and development of those fields and therefore don't need to earn it back :-)

Perhaps Nigeria, which has lost a considerable amount of light, sweet crude market in North America to the shale oil drillers.

Perhaps Iran and Iraq, who we may discover are moving considerable volumes to China whose state-owned ships will not be subject to the risk insurance premiums that are keeping much of the world tanker fleet out of those Persian Gulf ports given sanctions (Iran) and terrorism threat (Iraq).

The export numbers will be revealed in the weeks and months to come and we'll be able to see what's going on...but at the moment quite opaque.

[GRG55]

Re: brazil reduces oil production plans

If the Saudis are cutting supply in present circumstances it means someone, somewhere is undercutting Saudi's falling price. I doubt it is Russia...

China Scores Cheap Oil 14,000 Miles Away as Glut Deepens

By Bloomberg NewsOct 24, 2014 2:18 PM MT

China is finding oil supplies 14,000 miles away, aided by the global rout in prices that’s left producers vying for new markets.

PetroChina Co. said it bought Colombian crude for a northern refinery for the first time because it was good value. The transaction underscores how the world’s second-biggest oil consumer is benefiting as producers from the Middle East to Latin America vie for customers in Asia...

...China’s purchases of Colombian crude totaled 7.8 million metric tons from January to September, more than twice the amount a year earlier, customs data showed Oct. 22. Shipments from Saudi Arabia, its biggest supplier, shrank about 11 percent to 36.6 million tons, according to the data...

...China’s supplies from Colombia cost an average of $94.56 a barrel last month while Saudi shipments were purchased for $102.30, according to data compiled by Bloomberg...


The U.S. imported 7.62 million barrels of crude a day in July, 29 percent less than the peak in June 2005, data from the Energy Information Administration show. Shale oil has boosted the country’s crude output to the highest since 1985. European consumption is also shrinking as refineries shut or convert to storage depots at the fastest pace since the 1980s.

Crude that may have previously found a buyer in the U.S. or Europe is now available for Asia and competing with traditional suppliers from the Middle East, according to the Paris-based International Energy Agency. Asia will account for almost 80 percent of global demand growth this year, with China alone responsible for a third, IEA data show.

“The next area we see being backed out if the U.S. production continues growing is some of the Latin American producers such as Colombia and Venezuela,” said Chauhan of Energy Aspects...

[bill]

Re: brazil reduces oil production plans

http://blogs.ft.com/beyond-brics/201...default-china/
10-22-2014
Last month Ricardo Hausmann, a normally mild Harvard academic, set off the equivalent of a financial bomb. The economist suggested that Venezuela had already defaulted on many of its suppliers, its oil service contractors, and its citizens. So who or what might come next?When Hausmann suggested Wall Street, the market reaction was huge. Indeed Venezuelan bonds, undercut by the falling oil price, have been dropping ever since. Yet it turns out that Venezuela’s latest default has been, in fact, to China. Given that Beijing is one of Caracas’ closest allies, this is surprising. It is also bullish for Wall Street.
Venezuela has long been a major recipient of Chinese loans, accounting for half of Beijing’s lending to the region. Since 2006, it has taken on $50bn of oil-backed debt. Last year, Rafael Ramirez, the former head of state-oil company PdvSA, revealed that these payments-in kind absorbed over half of Venezuela’s 640,000 barrels per day of oil exports to China. But no more, it seems.
Last week, Venezuela’s national gazette made it official that Caracas no longer needed to export 330,000 barrels bpd to China to pay for its loans. Instead, according to BancTrust, a boutique investment bank, PdVSA can now send as much or as little oil to Beijing as it wants. Furthermore, the terms of the loans have been extended beyond their current three years, perhaps indefinitely. China’s Ministry of Commerce has since confirmed the changes, pointing out they were made at Venezuela’s request.
This de facto debt rescheduling tells us several important things. First, it is another confirmation of Venezuela’s economic and financial distress. To service its Chinese debts at lower oil prices, Venezuela would have had to export comparably more oil. But the country cannot increase oil output quickly. Nor does it have the financial wherewithal to service its Chinese debts in cash instead; foreign reserves are already under pressure. So something else had to be done.
Second, China apparently agreed to the debt rescheduling perhaps because its banks believed in taking the long view. After all, Venezuela has the world’s largest oil reserves – so one day it will pay. But was the rescheduling China’s preferred choice? As the old saying goes: if you owe the bank $5, you have a problem, but if you owe the bank $5m, the bank has a problem. Either way, China is unlikely to be a source of fresh finance for Venezuela from now on.
Lastly, Venezuela now has 330,000 bpd of oil – equivalent to almost $25m a day or $9bn a year — that it can use for other ends. One use might be to ease the import crunch that has resulted in shortages of so many basic goods, such as toilet paper. Another might be to divert resources to meet international bond payments. Either way, Venezuela is struggling and so far Wall Street is still being paid. But for how much longer?

[GRG55]

Re: brazil reduces oil production plans

What with QEⁿ, it took longer than expected, but once again we discover that just like gravity, what goes around, comes around

Jim Chanos Says Petrobras is a ‘Scheme, Not a Stock’

October 20, 2014, 5:39 pm

STEPHANIE RUHLE, BLOOMBERG: Jim, we will get to talk about China, but you just left the stage. You have been followed out here by attendees talking about your big idea, Petrobras. Talk to us.

JIM CHANOS, FOUNDER, KYNIKOS ASSOCIATES: Well, I guess we’re going to talk about one emerging market situation first. I gave a presentation inside to the Robin Hood folks on an idea we’ve been involved with on and off for the last couple years, but it was timely because of the upcoming election...

...RUHLE: Why? It is so tied to Dilma Rousseff.

JIM CHANOS: Well it is, and that’s the interesting thing. Every time Dilma’s poll numbers go up, Petrobras stock goes down. And every time Neves’s numbers go up, Petrobras stock goes up. The problem is it’s tied to Dilma. She was the chairwoman of this company. There’s been a number of investigations and – and scandals swirling the company – around the company. And we’re just not sure that even if Neves wins he’s going to really be feeling all warm and fuzzy toward this creature. Having said all that, the economics are just so poor at Petrobras that we really have called it a scheme, not a stock.

RUHLE: A scheme. Do you believe they misled investors back in 2010 when they did the IPO?

JIM CHANOS: Well we did – there was a slide in our presentation where we looked at the company’s projections. They keep – these five-year plans that they keep revising. And suffice it to say that if you look at it on the table, they have been a tad too optimistic down through the years by a lot.

RUHLE: But is that enough to call it a scheme?

JIM CHANOS: Well, no. The problem is is that in fact the company is cash flowing about $25 billion, $26 billion, so-called EBITDA, and its CapEx annually is $45 billion, and another $5 billion of capitalized interest. So their – their gross cash flow is only covering half of their capital spending and capitalized interest, so they’re not covering their dividend. And in fact they’re having to borrow the shortfall, and they’re borrowing more than $20 billion a year. This is an enormous, enormous sink hole from a financial point of view.

RUHLE: So their expectation to double output by 2020 for you, laughable.

JIM CHANOS: Well they can double output by 2020. For the last handful of years, five years, production really hasn’t increased. And we put a chart up to show the Robin Hood folk. Despite this enormous capital expenditures and the fact that their big pre-salt (ph) field is now coming online, production hasn’t increased. And that’s disturbing...

...RUHLE: Batista saga, way too tied to the government. So are you saying this is just like that? Because many people think if Neves wins the stock will rally.

JIM CHANOS: Well that’s in fact what I think will be the opportunity. And that’s why I thought it was timely this week that if that’s what happens and if investors knee jerk run into the Bovespa and buy Petrobras because Neves wins, I think it’s a great entry point on the short side in this story because it doesn’t change the economies of the situation. And we pointed out today in our presentation that even – even if you gave this company Exxon’s margins both upstream – and I see your eyebrows – and downstream, it would still be break even cash flow.

RUHLE: Really?

JIM CHANOS: Yes.

[jk]

Re: brazil reduces oil production plans

it's interesting to look at that chart and think about all the hoopla that accompanied brazil's offshore discovery in '06.

[GRG55]

Re: brazil reduces oil production plans

it's interesting to look at that chart and think about all the hoopla that accompanied brazil's offshore discovery in '06.

Yep.

From 01-09-09:

The hype and mis-information around Tupi continues...

Petrobras to Pay Most in Bond Market Since ’03 on Oil

Jan. 9 (Bloomberg) -- Petroleo Brasileiro SA, owner of the Americas’ biggest oil discovery in three decades, will pay the most in the bond market in five years to finance a record investment plan after crude prices tumbled...Petrobras will boost borrowing this year from $8.5 billion in 2008 to help fund an investment plan of about $22 billion, Credit Suisse Group AG said yesterday...

...Petrobras, whose shares fell 48 percent last year, needs money to pay off $3 billion of maturing debt and fund development of the Tupi field. Its borrowing costs are rising after oil tumbled 71 percent from a July record and the credit crisis curbed demand for emerging-market debt. Petrobras’ 5.875 percent bonds due in 2018 yield 4.92 percentage points over Treasuries, more than on any bond the company sold since June 2003...“Petrobras will probably have to pay up to tap the international debt market,”...

...Petrobras became a darling of investors after its discovery in November 2007 of the Tupi oil field, the largest find in the Americas since Mexico’s 1976 discovery of Cantarell.

Tupi contains an estimated 5 billion to 8 billion barrels of oil. It may be at the center of a new offshore oil province that Haroldo Lima, head of Brazil’s oil regulator, said could contain 80 billion barrels of oil, enough for more than 10 years of U.S. consumption.

In January last year, Petrobras said another find nearby, Jupiter, was probably “Tupi sized.” In September the company said that another field near Tupi, Iara, holds 3 billion to 4 billion barrels of oil and gas. Petrobras and other oil companies may have to spend $600 billion over two decades to develop the “pre-salt” offshore reserves around Tupi, according to UBS
AG...

The following came to mind as I read this article:

• Excessive debt is one of the most common reasons that resource companies fail. It's bad enough that commodity prices are cyclical; but for an oil company the kiss of death is drilling using debt. If the wells prove to be non-commercial there is no commodity to generate future cashflow, but the debt remains.
• The cost and time estimate from UBS is the first credible number to develop this oil province I have seen from analysts quoted in the media. Compare that with Petrobras' 2009 budget, and one can quickly see that the amounts that Petrobras can devote to these pre-salt projects in 2009 is barely enough to drill a few wells and get started on the engineering. Based on the long, long history of frontier oil and gas development, by the time Brazil's offshore development is well underway, the $600 B estimate will feel like a quaint memory - expect the actual costs to more than double.
• 4.92 percentage points over Treasuries!!! Where's all that low, low cost credit we keep hearing about? This is the best a state-owned oil company, backed by a country with one of the fastest growth rates in the world in recent years, and control of what is alleged to be 80 billion barrels of oil [the "next OPEC member"], can do?

[GRG55]

Re: brazil reduces oil production plans

So what are the Brazilians up to now?

• Petrobras alone can't possibly raise or borrow the huge sums needed to develop Brazil's offshore oil resources;
• Although Petrobras is one of the more competent NOCs [national oil company] it does not have access to all the knowledge and data needed to efficiently develop the ultra-deep Santos basin;
• Petrobras needs the select few IOCs that can supplement its capabilities in the ultra-deepwater...and it probably needs some of their cash too;
• What is going on now is just more posturing...and not very sophisticated posturing either :p
• Expectations [raised in part by some of the ridiculous discovery claims coming from Brazil itself] that Brazil would "fill the gap" with large increases in oil exports were always misplaced. There was never any logic behind the idea that Brazil would export raw crude and not maximize the domestic industrial benefits from its own energy. Brazil is not a totally corrupt, completely hopeless fourth world nation like Nigeria...but humans the world over seem unable to avoid the corrupting influence of petroleum, and that potential for personal gain for a select few influencial and well connected individuals might be a motive to maximize exports. Regardless of how fast Brazil, or the rest of the world, would like to see production increases, Tupi and the other Santos Basin fields will take two to threedecades to develop fully.

The important issue imo is whether Brazil will develop its resource at a sensible pace, using appropriate external resources, and maximize the benefits for themselves...or will the politicians and leaders fall under the spell of "potentially vast riches" and follow the same well worn path of so many other nations that were in the same position.

From 11-09-07:
http://www.itulip.com/forums/showthr...19470#poststop

Time to reprise an old thread

Here's what the hype was all about back when this thread was started:

A New Energy Leader: Brazil Wants to Join OPEC

May 09, 2008 – 04:55 PM

Brazilian President Luiz Ignacio Lula da Silva wants to get his country into OPEC -- a move that could lower the price of oil worldwide. With a booming biofuel business alongside new oil reserves, Brazil is poised to become a global energy leader.

In 2007, a huge oil reserve was discovered off the coast of Brazil's Rio de Janeiro. The find boosted Brazil's oil reserves by 40 percent and could catapult the South American nation into the top rank of global producers. In an interview with SPIEGEL President Luiz Ignacio Lula da Silva said that Brazil wants to join the OPEC oil cartel -- a move that could lower petroleum prices worldwide...



And here's where Brazil finds itself now:



Production plateaued almost a soon as that alleged "OPEC sized" discovery was made. Far from coming anywhere close to meeting the "EC" in OPEC, the gap between domestic production and internal consumption would appear to be increasing.

Here we are nearly 6 years after this thread was started. Looks like they did follow that same well worn path after all.

Petrobras Deepens China Tie With $3.5 Billion Loan Deal

5:58 AM MDT
April 1, 2015

Petroleo Brasileiro SA, the world’s most indebted oil producer, is bolstering ties to China as a corruption scandal has shut the company out of international bond markets.

Petrobras, as Brazil’s state-run producer is known, signed a finance contract with the China Development Bank for $3.5 billion, the first part of an accord to be implemented this year and in 2016, according to a regulatory filing Wednesday. That follows the entrance of two Chinese oil companies in Petrobras’s biggest project in 2013 and a $10 billion cash-for-oil agreement in 2009.

Petrobras is slashing investments, selling assets and seeking financing options as it searches for ways to book corruption losses in financial statements. Delays in reporting earnings have all but shut out the company from bond markets at a time of slumping crude prices.

“The Chinese are seizing on their opportunities worldwide and the fact that Petrobras has another funding option is very positive,” Marcelo Lima, a fixed-income trading manager at INTL FCStone Securities Inc. in Miami, said in an e-mail.

The deal with China, which Petrobras said would be followed by further agreements with the Asian nation, is the first major financial pact since the overhaul of Petrobras’s management in February and the arrival of Chief Executive Officer Aldemir Bendine...

...“This contract is an important framework to continue the strategic partnership between China Development Bank and Petrobras.”...

...The China Development Bank contract was signed with Petrobras Global Trading BV during a trip to China by Ivan Monteiro, the company’s chief financial officer.

Wednesday’s announcement follows the purchase by PetroChina Co. and Cnooc Ltd., China’s biggest offshore explorer, of a 10 percent stake each in a consortium to explore the Libra oil field in the ultra-deep waters of Brazil’s Santos Basin.

In 2009, Petrobras signed a $10 billion loan with China Development Bank which included an export component for 150,000 barrels of oil a day in the first year and 200,000 barrels a day over the nine subsequent years.

Brazil’s Petrobras Obtains $3.5 Billion in Financing From China Development Bank

Updated April 1, 2015 5:17 p.m. ET

RIO DE JANEIRO—Brazil’s state-run Petroleo Brasileiro SA said on Wednesday it signed a $3.5 billion financing deal with the China Development Bank, highlighting the oil giant’s deteriorating financial condition in the wake of a vast corruption scandal as well as China’s growing ties to Latin America...

...The Chinese money comes as Petrobras is scrambling for financing to continue its costly oil exploration and production activities. The kickback-and-bribery scandal has effectively cut the oil giant off from global capital and debt markets. Moody’s Investors Service in February downgraded the company’s debt rating to junk, and its bonds are trading near record lows.

Petrobras is the most in-debt major oil company in the world, laboring under $135 billion in loans. The troubled firm plans to cut an ambitious $220 billion capital investment plan by $16 billion. And it is looking to shed $13.7 billion in assets in the next two years.

The deal announced Wednesday marks the latest Chinese funding for Petrobras. Chinese state-owned oil companies Cnooc Ltd. andPetroChina Co. already have a 10% stake in Brazil’s biggest offshore oil field. Petrobras signed a deal for $10 billion with the China Development Bank in 2009 in which China would be guaranteed a certain amount of exported oil from Brazil.

Is China the 21st century colonizer?

(with apologies to Leonard Cohen)

...I practiced every night, now I'm ready

First we take Moscow, then we take Brazil...

[thriftyandboringinohio]

Re: brazil reduces oil production plans

...Is China the 21st century colonizer?

Yes.

[touchring]

Re: brazil reduces oil production plans

Nice. The US tries to gain a couple of insignificant coal fields in Ukraine while China gains Brazil, and this is only the beginning.

Cutting off the entire arm just to get rid of the itch is a sign of insanity.