ONS gets underway with high-profile speakers, but attention focuses on Petrobras head

By Kurt Abraham, Editor on 8/29/2016

The Offshore Northern Seas (ONS) conference (as well as the exhibition) got underway on Monday morning with an opening session that was loaded with high-profile governmental and industry personalities. Norwegian Crown Prince Haakon and Prime Minister Erna Solberg did their best to welcome attendees, and to put a positive face on what obviously has been a very rough 22 months for Norway economically, given oil price behavior and the resulting massive drop in upstream oil-and-gas activity.

And then, addressing the opening them of “Transition,” an all-star cast of industry executives—including Statoil President and CEO Eldar Sætre, IHS Vice Chairman Daniel Yergin, Royal Dutch Shell CEO Ben van Beurden and ConocoPhillips Chairman and CEO Ryan Lance—proceeded to give their opinions on what kind of transition the global upstream industry is now undergoing, and how their companies are adapting to the situation. Predictably, all of them seemed to believe that when an industry recovery truly begins, most likely a few months into 2017, activity will not return to the business-as-usual model of 2014. Indeed, they collectively see the E&P market slowly recovering and adapting to a new world of enhanced efficiencies, cost reductions and diminished expectations for oil prices.

One thing that virtually every speaker touched on in the opening session was a concern that the global economy is slowing, and that weak economic growth may continue for several quarters. Key components of this are the growth rate in China, and fears of the Brexit vote in the UK having repercussions for Europe’s economy. Indeed, Yergin remarked that an interesting twist to the current economic cycle is that analysts have not seen the normal effects of lower oil prices reflected in consumer behavior or economic growth.

But the crowd’s real focus in the session was on Petrobras President and CEO Pedro Parente, who was refreshingly forthcoming about the troubles at his firm, as well as in Brazil, as a whole. “Part of my job is to recover the pride of the Brazilian people,” explained Parente, as he described his plan to put Petrobras back on solid financial footing. “We were ashamed of what happened in the scandal.” And, he noted, Brazil was positioned to fall into a recession before the scandal at Petrobras, and it has now been in that recession for about three years. To get Petrobras turned around, Parente is pursuing a very aggressive divestment plan. “Our leverage is five times our cash flow right now, so we have to reduce this as quickly as possible,” said Parente. “We are keeping on target—it’s a very strong target, to reduce our leverage by half.”

Accordingly, the Petrobras president has been selling assets at a record pace to generate cash, to, in turn, reduce the massive debt. “Our efforts have been well-received by the markets,” said Parente with some pride. Yet, the various unions representing Petrobras workers have cried foul, accusing Parente of selling assets to foreigners at bargain prices. He said that these sales of assets have been helped along by the years of goodwill that the company has built up with its counterparts around the globe. “Even in the worst period of the scandal, we kept very good partnerships in the upstream,” said the President.

Parente said that going forward, the firm will be very careful about how it spends capital, and that all projects will be looked at with an eye toward how much value they create, and what their potential is to generate cash. “So, we are looking to do more partnerships with other oil companies for some of our projects,” added Parente. “This will help to reduce the amount of capital that we have to risk.”

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