Oil and Gas Lucas Aristizabal Senior Director São Paulo, April 15, 2015
Agenda Oil and Gas - Global Oil and Gas Market - Brazil Oil and Gas Industry - Petrobras Credit Quality - Q&A - Strategic Importance for Country - Rating Triggers - Lava-Jato Implications for PBR.
Global Oil and Gas Market Supply & Demand Dynamics D S S www.fitchratings.com 4/3/14 2
Global Oil and Gas Market What is Fitch s Outlook for Oil? - Fitch s price deck for 2015 is $50/bbl for WTI crude ($55 Brent), trending upwards toward $75/bbl for WTI ($80 Brent) - Historically, Fitch s price deck has been more conservative than spot market. It is meant for modeling purposes and is not a projection - Long-term oil price reflects supply/demand fundamentals and the marginal cost of production, whereas spot oil prices can be driven by non-fundamental factors such as weather, geopolitical risk, and demand for inflation hedges - Oil market is very sensitive to small variations in supply/demand dynamics. www.fitchratings.com 4/3/14 3
Global Oil and Gas Market High Price Volatility www.fitchratings.com 4/15/2015 4
Brazil Oil and Gas Market A Net Importer www.fitchratings.com 4/3/14 5
Petrobras Credit Quality Strategic Importance for Country - Virtual monopoly position in the supply of liquid fuels for the country - Key for energy security - Strategic promoter of economic activity; developer of oil industry - Government ownership, control and financial support - Extensive direct and indirect outreach into financial institutions www.fitchratings.com 4/3/14 6
Petrobras Credit Quality Linkage to Sovereign Rating History BBB+ BBB BBB- BB+ BB BB- B+ B B- Brazil Petrobras 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Source: Fitch Ratings. www.fitchratings.com 4/3/14 7
Brazil Oil and Gas Market Cost of Government Control www.fitchratings.com 4/3/14 8
Brazil Oil and Gas Market Cost of Government Control Petrobras Cumulative Downstream Losses (USD Million) 35.000 30.000 25.000 20.000 15.000 10.000 5.000 0 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 Source: Company reports www.fitchratings.com 4/3/14 9
Petrobras Credit Quality Above Average Full Cycle Cost (USD/boe) 2011 2012 2013 Lifting Costs 12.6 13.8 14.8 Production Taxes 19.9 19.9 18.2 Production Expenses 32.5 33.7 33.0 Gross Interest Expense 5.1 5.4 5.9 Total Cash Costs 37.7 39.1 38.9 Total Cash Costs ~ Cash Break Even 37.7 39.1 38.9 Finding, Development, Acquisition Costs: FD&A, 3 Yr Ave. 13.8 15.3 22.4 Assumed 15% ROE on FD&A 2.1 2.3 3.4 Full Cycle Break Even per boe 53.5 56.8 64.7 Full Cycle Oil Price (estimated) 53.9 58.2 68.3 www.fitchratings.com 4/3/14 10
Petrobras Credit Quality Solid Liquidity Position Petrobras' Liquidity (USD Million) 70.000 60.000 5.000 50.000 2,000 40.000 30.000 20.000 10.000 3.000 0 Cash BOP EBITDA Interest Taxes Capex Dividends Net Debt Proceeds Other Cash EOP Source: Company Reports. Fitch. www.fitchratings.com 4/3/14 11
Petrobras Credit Quality Rating Triggers - Failure to release FS on time and receiving notification of breach of covenants. Also; - Weak financial profile; Total debt to EBTIDA above 5.0x Coupled with - Perception of weakening government support - Preventing price increases - Neglecting access to financing from government control institutions - Holding a bidding round for new block in the short term - Denying requests to waive local content requirements - Incentivizing downstream capex www.fitchratings.com 4/3/14 12
Petrobras Credit Quality Lava-Jato Implications for Petrobras Petrobras Production Trend (Mil. Boe) 4,0 3,5 3,0 2,5 2,0 1,5 1,0 Historical No Delays Six Months 12 Months 18 Months 24 Months 30 Months 2000 2001 2002 2004 2005 2006 2008 2009 2010 2012 2013 2014 2016 2017 2018 Production Sensitivity (Total Debt to EBITDA) (x) 6,0 5,0 4,0 3,0 2,0 1,0 0,0 Historical No Delay 5,4 Base 18-Month Delay 5,6 4,5 4,0 Boe Barrels of oil equivalent. Source: Petrobras, Fitch. Note: 2014 Historical is LTM ended June 2014. Source: Petrobras, Fitch. www.fitchratings.com 4/3/14 13
700.000 Petrobras UDW Fleet Day Rates Brazilian vs. International Suppliers 600.000 Sete Brasil Fitch Rated 500.000 400.000 300.000 200.000 100.000 Odebrecht Norbe VI Odebrecht Norbe VIII Odebrecht Norbe IX Odebrecht ODN I Odebrecht ODN II Odebrecht ODN Tay IV Schahin Sertao Petrobras Median 0 Diamond Offshore Drilling Inc. Noble Corp Pacific Drilling Transocean Ltd. QGOG Constellation Ensco International Ocean Rig UDW Inc. Seadrill Group Vantage Drilling Odebrecht Schahin www.fitchratings.com 3/25/15 14
Disclaimer Fitch Ratings credit ratings rely on factual information received from issuers and other sources. Fitch Ratings cannot ensure that all such information will be accurate and complete. Further, ratings are inherently forward-looking, embody assumptions and predictions that by their nature cannot be verified as facts, and can be affected by future events or conditions that were not anticipated at the time a rating was issued or affirmed. The information in this presentation is provided as is without any representation or warranty. A Fitch Ratings credit rating is an opinion as to the creditworthiness of a security and does not address the risk of loss due to risks other than credit risk, unless such risk is specifically mentioned. A Fitch Ratings report is not a substitute for information provided to investors by the issuer and its agents in connection with a sale of securities. Ratings may be changed or withdrawn at any time for any reason in the sole discretion of Fitch Ratings. The agency does not provide investment advice of any sort. Ratings are not a recommendation to buy, sell, or hold any security. ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS AND THE TERMS OF USE OF SUCH RATINGS AT WWW.FITCHRATINGS.COM. www.fitchratings.com 4/3/14 15
Q&A www.fitchratings.com 16
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