GE O&G '17: Petrobras strategist details company's "Project Revolution"
By Adrienne Blume, Editor, Gas Processing and Executive Editor, Hydrocarbon Processing
FLORENCE, ITALY—Nelson Silva, Chief Strategy and Performance Officer for Petróleo Brasileiro SA (Petrobras), opened the second day of GE Oil & Gas' Annual Meeting 2017 with a keynote address on the company's efforts to turn its business around.
Petrobras tackles internal and market challenges. The company underwent a management reshuffle in early 2016 following its so-called "car wash" embezzlement scandal, which led to a "very serious financial situation" for the company and for the government, Mr. Silva said.
Sliding oil prices from late 2011 further hurt Petrobras' profitability. "Now we are rebooting the way we do business at Petrobras, so that we can survive any price of oil," Mr. Silva said.
Upstream investments around the world have fallen drastically since mid-2014 (Fig. 1). Although US shale oil has brought a production revolution to North America, Mr. Silva does not believe that US shale will be able to fill the larger, global production gap.
"The discussion is now about value sharing, and how we share that value with customers and suppliers," Mr. Silva said. "We're exploring synergies among players."
Push for cost savings. In 2015 and 2016, Petrobras reduced its workforce by approximately 20,000 people to manage costs and "exercise greater discipline" in its business. Mr. Silva outlined eight other key areas for cost savings at the company, including:
- Technical standardization
- Supply chain partnering and renegotiation
- Greater cooperation with industry players
- Organizational right-sizing
- Maintenance optimization
- Streamlining overhead, real estate and support service costs
- Improved workforce efficiency
- Optimization of logistics.
"We have to update our vision," Mr. Silva asserted. "We [at Petrobras] have to ask ourselves where we would like to be five, 10 and 20 years from now. Our new, updated vision for the company is that we are an integrated oil company—not an arm of the government, but a company just like any other, that must generate value to its shareholders."
Petrobras' revamped focus. The company's revised business outline is termed "Project Revolution" and includes four pillars, or guiding principles:
- Partnerships and divestments
- Sales margin optimization
- OPEX efficiency
- CAPEX efficiency.
The guiding philosophies under which these principles fall are safety, culture change and an improved management system. "We believe 2017 is going to be the year of the turnaround of Petrobras," Mr. Silva said. "We have a nice plan, but execution is what counts. We will be focused in 2017 on executing the plan we have created."
He added, "We have also clearly stated that we will stop doing investments in biofuels and fertilizer plants, and instead focus on deepwater production." Most of Petrobras' onshore drilling activity will be divested in favor of focusing on deepwater. The company has experienced significant success in its pre-salt reserves, with more than 130 production units in operation at present.
Reducing costs while upholding safety. Petrobras also aims to lower its net debt and earnings before interest, taxes, depreciation and amortization (EBITDA) from 5.3 in 2015 to 2.5 in 2018.
"However, safety comes first," Mr. Silva noted. "We want to make sure that the improvement of the company does not come at the expense of safety. We will keep our focus, and we will not become complacent on safety."
The chief strategist also gave a nod to climate change concerns, but acknowledged, "We must address our financial KPIs [key performance indicators] first." However, Mr. Silva said, "We will be watching very closely what will be happening with the climate change scenario."
Stay tuned for more coverage. More coverage of key speaker presentations from the GE Oil & Gas Annual Meeting is forthcoming. Watch this space for updates!
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