Petrobras CEO says cheaper offshore oil puts Brazil on the 'winner's side' of a tough market

Key Points
  • Petrobras CEO Pedro Parente said Brazil's low-cost offshore oil will put it "on the winner's side" in a tough market.
  • Oil majors have been snapping up blocks in Brazil's so-called pre-salt offshore reserves.
  • Petrobras is trying to turn around its business after years of poor management, a deep slump in oil prices and a massive corruption scandal.
Petrobras CEO: We see $55-$65 oil in the medium term

Brazil's low-cost oil will help Petroleo Brasileiro compete in a tough market as it seeks to turn around its business, Pedro Parente, CEO of the state-owned oil giant, said on Wednesday.

Oil majors such as Exxon Mobil, BP, Royal Dutch Shell, Total and Statoil have been snapping up blocks in the Atlantic Ocean off the coast of Brazil that hold crude under thousands of feet of salt. Six blocks in the so-called pre-salt raised about $1.8 billion for the Brazilian government last month, though two blocks went unsold, leaving the country with a weaker haul than it expected.

Parente said it is crucial to be a low-cost producer as a boom in U.S. shale output is upending the oil market and as societies look to lower carbon emissions, in part by reducing their reliance on fossil fuels.

"For this, we count on the pre-salt production because the level of productivity of the fields is very high, so the cost to extract oil from the pre-salt is very low," he told CNBC's "Squawk on the Street" on Wednesday. "So we are talking about extraction costs below $7 per barrel."

"Really, what we have to do to be on the winner's side is to work on the cost and reduce our costs," he said.

Parente said he expects oil prices to remain in the $55 to $65 per barrel range over the medium term. Prices are at roughly half their 2014 highs.

Pedro Parente, CEO of Petrobras
Ashlee Espinal | CNBC

Parente made his comments after his company, known as Petrobras, reported a third-quarter profit that missed analysts' forecasts. The company blamed weak margins in refining and non-recurring charges for the lackluster result.

Petrobras on Monday posted a net profit of 266 million reais ($81.1 million), far below the average consensus estimate of 3.21 billion reais compiled by Thomson Reuters.

The quarterly results painted a picture of a company that appears to be slowly turning around its balance sheet despite many headwinds. Petrobras unveiled a plan in June to review fuel prices more frequently in a bid to regain market share it lost by keeping wholesale prices to retailers above global benchmarks.

Petrobras cut debt by 11 percent from 2016 to 279.237 billion reais ($85.15 billion) in the quarter but remains the world's most indebted oil company, scarred by years of poor management, a deep slump in oil prices and a massive corruption scandal.

Parente, a former agribusiness executive, took the helm of Petrobras last year.

Asked how Petrobras would weather a period of rising interest rates — which makes it more expensive to borrow and refinance existing debt — Parente told CNBC the company would focus on improving its operations.

"What we have to do is to continue very strictly following in a very disciplined way our strategic plan," he said. "Reducing costs, as we have done, having more effectiveness, more efficiency in our [capital expenditure] numbers and fulfilling our divestment program."

Petrobras intends to drive down its net debt to 2.5 times earnings before certain costs, a healthy level for the industry. If it can accomplish that feat, Petrobras will be prepared for a higher rate period, Parente said.

— Reuters contributed to this report.