Petrobras is pledging a 25% cut in carbon emissions by 2030, but that hasn’t stopped Chief Executive Officer Roberto Castello Branco from dismissing pledges by peers to completely neutralize their carbon footprints two decades later.
“That’s like a fad, to make promises for 2050. It’s like a magical year,” the head of Brazil’s state-controlled oil giant said in an interview. “On this side of the Atlantic we have a different view of climate change.”
His stance more or less echoes those of U.S. oil giants Exxon Mobil Corp. and Chevron Corp., which have emission reduction plans but have been outspoken about their focus on crude.
Shale explorer Occidental Petroleum Corp. recently became the first large American oil producer to aim for net zero emissions from everything it extracts and sells by 2050.
Royal Dutch Shell Plc, BP Plc and other major European producers were the first to make similar pledges.
Even though Petrobras’s emissions cut goal is more modest, it still underscores the growing importance of environment, social and governance, or ESG, to investors and the general public.
Petrobras’s climate policy focuses on “tangible” steps to reduce the amount of pollution caused by extracting, transporting and refining oil, Castello Branco said. The Rio de Janeiro-based company recently set up a management team dedicated to climate change. But, much like Exxon and Chevron, it’s steering clear of renewable energy businesses where it has little expertise and is unlikely to make much money.
Brazil’s government has come under intense criticism for not doing enough to combat record forest fires in the Amazon and encouraging settlement. When confronted with skepticism on Petrobras’s own environmental policies, Castello Branco said he responds with facts and figures, such as a 70% reduction in emissions from Petrobras’s new line of soy-based diesel.
Petrobras is also expanding at its most prolific oil fields that produce a lighter and less contaminating grade of crude than the legacy fields it’s selling off. The idea is to produce only the most profitable barrels, not the growth at all cost model seen during previous oil booms, Castello Branco said.
Talk of oil consumption peaking anytime soon is premature, and could be just as wrong as adherents to Peak Oil theory who a decade ago thought the fossil fuel was running out, the CEO said.
“I believe oil will be in demand for a long period of time. It is still the backbone of modern society,” he said. “This subject of peak demand is similar to what we heard in the past about peak supply. We don’t know.”
Petrobras was able to weather the depressed oil market in 2020 thanks to strong Chinese demand for Petrobras’s most dominant grades from deep-water fields. It’s introducing oil from the giant Buzios field to China, and its exports will increase more if it’s successful at selling eight domestic refineries.
Castello Branco said four of the refineries are in the final stages of the sale process, and the rest will be sold before the end of 2021. Petrobras could have sold even more oil to China this year, he said.
“There is enough room to export more to China. It depends on our production capacity,” he said. “China will continue to be a large client for Petrobras.”
While Castello Branco is upbeat on the future of oil, Petrobras is slashing capital expenditures 27% in its 2021-2025 business plan to counter the impact of lower prices and slower growth in demand. The resulting cash flow will pay debt and fund investments instead of increasing shareholder dividends, at least until 2022, when total debt is expected to fall below $60 billion.
Petrobras — which held the unflattering title of world’s most indebted oil company when it was going through an epic graft scandal in the mid-2010s under previous management — has been slashing borrowing at a faster pace than peers. Shell and BP both have bigger debt loads now.
“I believe oil companies are not cash cows,” he said, pointing to the volatile nature of prices and revenue. “What we decided to do was prepare ourselves for a low-price scenario.”
Petrobras is selling refineries, pipelines, oil fields and power plants in a massive divestment program that could raise as much as $35 billion. Part of the trade off is slower output growth.
If Petrobras finds buyers for its traditional oil fields in the Campos basin and other regions, its output is likely to remain steady at around 2.7 million barrels a day as foreign producers and domestic independents take over some production.
“Our divestment program is alive and going well,” Castello Branco said.