RIO DE JANEIRO (Reuters) – Investors cheered a significant cut in production costs at Brazil’s state-run oil firm Petrobras on Friday, sending shares in the company soaring 4% in morning trade, their biggest intraday gain in more than a month.

Source: Reuters/Sergio Moraes

In its third-quarter results released on Thursday night, the company said production costs in a key offshore oil area known as the “pre-salt” fell 20% from the previous quarter to around $5.03 per barrel.

In a call with analysts, Exploration and Production Director Carlos Alberto de Oliveira said costs could be slightly higher next quarter thanks to the ramp-up of the P-70 platform and other one-off factors, likely bringing costs back near $6 per barrel.

Still, analysts were encouraged by the cost savings and overall financial results, which were roughly in line with expectations.

Analysts at Banco BTG Pactual SA called the production cost figures “impressive,” adding that the firm’s earnings before interest, tax, depreciation and amortization beat their estimates by 13%.

In the call with management, an analyst at JPMorgan Chase called the lower production costs “the big surprise” of the quarter.



On the same call, Petrobras executives floated some possible ideas for dealing with significant amounts of natural gas in many of the company’s offshore oilfields.

Offshore natural gas is considered both a problem and an opportunity in Brazil, as domestic consumption in low and there is little export infrastructure. So far, most firms have resorted almost entirely on re-injection, shooting gas back into the seabed to produce more crude.

Downstream director Anelise Lara said Petrobras was studying increasing the size of onshore powerplants, and, eventually, participating in domestic power auctions. She said Brazil would need additional infrastructure to transport natural gas ashore from offshore fields, particularly in the Santos Basin off the coast of Sao Paulo.

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