Petrobras Capex - What jumps out to me
The Gist: Petrobras’ update to its 5-yr capex outlook was a positive data point to the international capex theme. However, there is reason to believe there is more upside to their spending numbers.
This post was scheduled prior to the recent announcement of Brazil and thus Petrobras joining the OPEC+ alliance. Nonetheless, it wouldn’t change some of my conclusions presented later. However, a quick thought on them joining la Familia.
It furnishes the OPEC+ alliance with a member in the Atlantic basin to counterbalance the production declines observed in Libya, Nigeria, Angola, and Venezuela.
They produce a light/medium crude quality that is pretty close to some of those aforementioned countries. See the green dots below that approximate the API and sulfur content of their Lula and Buzios grades.
Offsetting that, Brazil still sends a majority of their exports to China and the Saudis already have issues with Russia and Iran capturing more of that critical market.
Before I begin I want to share a little post-Thanksgiving cheer. Not long after I finished my 2nd helping of pie, I got this nice little email from Substack.
We breached the 100-paid subscriber mark!
I express my gratitude to everyone who is helping turn my dream into a reality as I follow my passion for creating oil charts that extend back to the Battle of Thermopylae.
And for those on the free list, thank you as well for following along.
Onto the regularly scheduled programming.
During the holiday weekend, as many were recovering from tryptophan-induced drowsiness, Petrobras (PBR) was presenting its five-year capex outlook.
The presentation can be found (HERE) but the summary is they bumped up the 5-year cumulative spend to $102B from $78B a year ago while bumping up the 5th year production target (2028) by only 100k boe/d to 3.1mil boe/d (of which 2.5mil bbl/d is oil that presumably will be subject to the OPEC+ quota system).
An update to the capex growth chart for Supermajors, E&Ps, and a few select NOCs is below with the latest PBR numbers.
This announcement doesn't alter the perspective of this blog, which maintains that there will be a resurgence in international capital expenditures, reminiscent of the early 20th century (HERE).
But it is always important to temper one’s view.
While the initial chart suggests that Petrobras' 5-year capex growth rate is approaching levels observed in previous peaks, it's crucial to highlight that when assessing capex in absolute nominal dollars, it remains considerably lower than the 2010-2013 period when the company was spending ~$45 billion/annum.
Those preceding peaks denoted a phase in which the company became a prominent global player in the oil markets.
Nonetheless, Petrobras is presently generating some of the highest returns on capital employed among its peers so when a large producer with high returns updates its outlook we must all pay attention.
The only company that ranks higher than Petrobras but not shown on the chart is….ARAMCO (~30% ROCE).
Who are the better capital allocators now? NOCs or Western IOCs?
I updated my chart below which shows inflation-adjusted upstream capex per boe to see how Petrobra’s latest spending plans compare with some of their peers. The result is the chart below.
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