Petrobras Lifting Costs Rise 21% in Q3, Expected to Remain High

Brazil's federal energy company Petrobras (NYSE: PBR) expects its lifting costs to remain high as long as international demand growth for oil products continues to outpace production, pushing up equipment and service costs, company officials told analysts in a webcast on Monday to discuss Q3 results.

Petrobras' lifting costs rose to US$5.83 a barrel in the third quarter of 2005, up 21.5% from US$4.88/b in the second quarter and 42.5% from US$4.09/b in the third quarter 2004, the company said.

According to the company, US$0.71/b of the current lifting cost is a result of higher costs for leasing of platforms and higher services costs, including a bonus payment to the operators of the Marlim Sul floating production, storage and offloading vessel (FPSO) in the Campos basin Marlim Sul field, the company said.

The rest of the increase in lifting costs was due to the appreciation of the local currency against the US dollar and increased production costs in the Campos basin Albacora Leste field and the Santos basin Coral field.

Domestic production accounted for 91%, or 1.73 million barrels a day (Mb/d), of the company's total 1.89Mb/d of oil production in 3Q05. The international price of benchmark Brent oil has risen 39% from 4Q04-3Q05, pushing the average price to US$61.53/b as projections for world oil demand have outpaced production increase projections. The result has been a sharp rise in exploration activities and for demand for equipment and services.

Petrobras has partially kept up with the oil price increase by raising its average domestic sales price 51% in the 12 months ending September 30 to around US$60/barrel. Petrobras also reaffirmed its plans to continue to expand production, which is pegged to rise to 2.3Mb/d in 2010.

In February 2006 the company expects to start production of the 180,000b/d P-50 FPSO, company CFO Almir Barbassa said during the webcast, adding it should reach full capacity by September 2006. This and the startup of another three oil production units should help the company top domestic production levels of 1.8Mb/d in 2006.

Petrobras invested 16.9bn reais in the first nine months of 2005, including its participation in special purpose companies, about 56% total planned investment this year.


Petrobras has also taken advantage of the increase in oil prices to fatten its cash reserves and postpone issuing debt in international markets.

Petrobras' cash reserves stood at 21.2bn reais at the end-3Q05 from 18.2bn reais at end-2Q05 and 20.5bn reais at end-3Q04, the company said in a statement.

The last time Petrobras issued debt was in September 2004. The company has authorization from the US Securities and Exchange Commission (SEC) to issue as much as US$6.5bn.

"We would have to find a very good reason to issue debt with these levels of cash," Barbassa said. The extra cash reserves, however, will likely be used for the company's US$56bn 2006-2010 investment program, since Barbassa said the company would not raise its dividend distribution from 25% of company profits.

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