Petrobras Doesn't See Fall in Lifting Costs

Brazil's federal energy company Petrobras (NYSE: PBR) will not likely reduce its lifting costs in the coming year, CFO Almir Barbassa told analysts over a webcast Tuesday.

The reasons are that costs of equipment and services in the oil industry remain high because of strong global demand and because contracts for offshore operations include payment of bonuses based on productivity, he said.

The company's domestic lifting costs rose to US$5.73 per barrel in 2005 from US$4.28/b in 2004. In the final quarter of 2005, Petrobras' lifting costs were as high as US$6.03/b.

"We are leasing lines at astronomical prices," Barbassa said.

Specialized technical servicing of dry wells and a bonus payment to the FPSO Brasil production unit based on productivity levels were also behind the increase in operating costs, Barbassa said. The 95,000b/d FPSO Brasil is leased from US oil services company Single Buoy Moorings to produce oil in the deepwater Roncador field in the Campos basin.

"We have similar bonus systems for other production units owned by third parties," Barbassa said.

Among them the FPSO Seillean currently being tested in the Golfinho field in Espírito Santo basin and the FPSO Capixaba, which will also be located in the Golfinho field, Barbassa said.

Petrobras also said that lifting costs rose because of higher personnel costs.

The company's operating costs rose to 19.7bn reais (US$9.3bn) in 2005, up 22% from 16.1bn reais the previous year.

The increase also reflects higher refining costs, which rose to US$1.9/b in 2005 from US$1.38/b, the company said in its financial report. Although the higher costs were related to programmed maintenance stoppages at some of the company's refineries, they also involved increased personnel payments.

The company spent 9.6bn reais on salaries and pensions for its 53,933 workers in 2005, up from 7.5bn reais for 52,037 workers in 2004.

On top of these operating costs, Petrobras also spent more to transport products, which increased the cost of products sold to 77bn reais in 2005 from 65bn reais in 2004, the company said in its 2005 financial statements.

Behind the rise in cost of sales were higher shipping charges as a result of the heated international oil market, Barbassa said.

The increase in operating costs was slammed by analysts in the conference call who said net profits would have been higher if the company controlled its costs.

Petrobras officials, however, did not indicate how costs could be controlled.

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