The company also owns oil refineries and oil tankers. Petrobras is renowned for its leadership in development of advanced technology from deepwater and ultra-deep water oil production. 55.7% of Petrobras' Commun Shares (with vote right) is owned by the Brazilian government, however privately held portions are traded on Bovespa, where it is part of the Ibovespa index.
Petrobras (PBR)
Q2 2007 Earnings Call
August 15, 2007, 10:00 AM ET
Executives
Almir Guilherme Barbassa - CFO and IR Director
José Sergio Gabrielli de Azevedo - President and CEO
Celso Fernando Lucchesi - Business Strategy and Performance
Analysts
Christian Audi - Santander
Frank J. McGann - Merrill Lynch
Mark McCarthy - Bear Stearns
Gustavo Gattass - UBS Pactual
Presentation
Unidentified Company Representative
Ladies and gentlemen, thank you for standing by and welcome to the Petrobras Presentation and Conference Call to discuss the 2007 Strategic Plan and Business Plan and the Second Quarter 2007 Results. At this time at the conference call, all lines are in listen-only mode. Later, there will be a question and answer session and instructions will be given at that time. [Operator Instructions]. As a reminder, this conference is being recorded.
Today with us we have José Sergio Gabrielli, CEO; Mr. Almir Guilherme Barbassa, CFO and IR Officer and Mr. Celso Lucchesi, Strategy Management Director. As always, other Petrobras representatives are here. We have a simultaneous webcast on the Internet that could be accessed at the site www.petrobras.com.br/ir/english. Additionally, on the webcast registration screen, you may download and print the presentation and download the financial market reports. Also, you can send your questions to us by Internet, click on the icon "Question to the Host" anytime during this event.
Before proceeding, let me mention that the forward-looking statements are being made under the Safe Harbor of the Securities Litigation Reform Act of 1996. Forward-looking statements are based on the beliefs and assumptions of Petrobras management and on information currently available to the company. They involve risks, uncertainties and assumptions because they relate to future events and, therefore, depend on circumstances that may or may not occur in the future. Investors should understand that general economic conditions, industry conditions and other operating factors could also affect the future results of Petrobras and could cause results to differ materially from those expressed in such forward-looking statements.
Finally, let me mention that this conference call will discuss Petrobras' results prepared in accordance with Brazilian GAAP. At this moment, we are unable to discuss any issues related to U.S. GAAP results.
The conference call and the presentation first will be conducted by CFO and Investor Relation Officer, Mr. Almir Barbassa. He will comment on company's operating and financial highlights and the main events during the second quarter 2007. Following that, our CEO, Mr. Gabrielli will comment upon 2020 Strategic Plan. Afterwards, we will be available for answers and any questions you may have. Mr. Barbassa, may you begin please.
Almir Guilherme Barbassa - Chief Financial Officer and Investor Relations Director
Good morning ladies and gentlemen. It's our pleasure to be here with you once more to discuss the second quarter results. To start with, we have here P-52 that shall be come on stream by October this year the first oil and we'll grow in production up to the 108,000 barrels of oil per day capacity.
I will give you one minute to read this disclaimer. And let's go for the results. The production, the domestic oil production, was pretty much stable between the first and second quarter of this year. We have some new, some platforms recently installed like P-34 and FPSO Capixaba and FPSO Rio de Janeiro that has a production increase, but at the same time we have some maintenance in a few platforms that kept the average production of the quarter, the second quarter little smaller than the first one. But what's important here is that in June we had a higher production when compared with May. So it seems that we are in a good trend. The oil prices for E&P was very positive in the second quarter and this is going to be one of the reasons to explain the good results we have in the quarter.
The refining in Brazil performed very well. We kept the utilization of the capacity we have in Brazil, we kept about the same level we have been using the domestic oil in the volume process in Brazil. What's important here is the sales volume. We have increased in this quarter very significantly when compared with the first quarter and we had the best... better quarter than last year as well. This was mainly due to the high season demand. We had a very big season crop in Brazil and lots of diesel were used, and the economy growth in Brazil is one of responsible because more fuels were demanded in the period. So this is going to be a reason why the downstream had a good performance in the quarter as well.
International price and other average of realization price in Brazil grew in the second quarter, mainly caused by two factors. First off... the two is the international oil price was higher, so we have some of the oil products sold in the Brazilian market. They are attached to the international oil price. So the average realization price in Brazil grew because of that. And the second reason was the foreign exchange. The appreciation of real as we sell in real. We had more dollars for the same amount of real.
The income statement we had because we sold more oil product in the second quarter. We had a higher net revenue as well as cost of goods sold increased. But we had lower operational costs, which lead us to a higher EBITDA. The EBITDA growth was very strong and all this led us to a very higher net income by about 65% increase. This was caused by higher price, higher volumes sold and lower operational costs and in the first quarter we had exceptional costs mainly due to the pension plan. And in the second quarter, we had also the benefit of interest on capital declared. So we had an increase on net income because of that.
Built... operational expense as I said was lower because of mainly two factors here. The exploratory costs that happened in the first quarter did not happen in the same level as in the second quarter. And the pension plan ex the costs we had in the first quarter did not happen again in the second. So this has helped to reduce the operational costs.
The E&P operating profit had a sizeable increase mainly due to the price as we saw at the beginning. The price that E&P has received during the second quarter was much higher than the first one. There were a small effect on cost of goods sold but they presented a sizeable increase on the revenue even having a slightly lower production, they downstream by taking into account the prices of international oil. The international oil price, as I said, caused to increase the domestic oil price and then we have an increase on revenue because of that and as they sold more volume of oil product this has helped to increase the total profit as well. And the cost of goods sold by volume and importing more expensive volume to be processed in Brazil caused more to the downstream but they succeed to have a larger operating profit in the second half as well. Second quarter.
The balance between export and import was positive when you take the volume but was not presented our best when taking into dollars and this is due to the fact that the product we export has lower value per barrel than the product we import.
Usually we import light oil and export heavy crude oil and we export fuel oil and import diesel, for example, as oil product. So the balance barrel per barrel is against us. Finally, the net income was better because of price, because of volume sold as we sold more we had higher cost of the goods sold but the operational expense was reduced and then increased our net income reaching 6.8 billion reals in the quarter which is about the same level of last year second quarter.
The leverage rate of Petrobras is kept on a low level and was reduced by 2 percentage points compared with first quarter, due to the fact that we have current appreciation in Brazil and deferring that in this case was reduced when measured in local currency. But that in this period you can see here we have a free cash flow as well that has helped to reduce the leverage of the company by increasing the availability. What the service to nation here is that in this first half of the year we used more than 12 billion reals to pay dividends and to pay debt. Part of the debt we paid was not matured yet; we anticipate payment. And this has caused a reduction in cash availability when compared with the beginning of the year by about 10 billion reals but we extended more than that and pay dividends and the financial debt.
Investments was very high in the first half of the year. We almost reached 20 billion reals that means about more than $10 billion at today's foreign exchange rate in Brazil and this $10 billion, 45%, was through exploration products. What means we are putting more money where we make more money. And I would, first off, that was addressed to exploration. In domestic lift in costs, we have a slightly increase when we measure it in dollars but if we take the -- weight our costs there were a slight decrease, and so because of increase in this cost in this second quarter was the real appreciation. And this, if we measure, results the government... having the government included we have an increase but this is because we paid, the government according to the international oil price. As international oil price, as you can see the range price went from $57.8 to $68.8, $11 increase. This caused us to pay more as government.
And then in the refining costs, we have the same case. We had cost increase when measured in dollars but when expressed in reals there were a decrease in cost. This can show you how this two costs. They are very important costs for the company. They are lifting costs in the refining costs are behaving when measured in Reals and most of these costs are paid and run in reals. And you have here the foreign exchange rate of... when translated into dollars; these costs are constant in reals grows in dollar.
This is a comparison with all the big oil companies that speak for itself. There's not need to explain. Petrobras performed very well when compared with the first quarter of this year.
The question-and-answer will be last before... after presentation of Mr. Gabrielli. Would you please Mr. Gabrielli?
José Sergio Gabrielli de Azevedo - President and Chief Executive Officer
Good morning. I am going to try to give you highlights of the new Strategic Plan that we approved in our Board decision last Monday and this strategic Board... this Strategic Plan try to define or redefine our vision for 2020 and how we vision the Petrobras at that time and how we are planning to prepare the company to face the new times in 2020
First, we think that we are going to see several different features in 2020 that must be taken into consideration by our Strategic Plan.
Questions related to environmental pressure, climate change, cleaner energies and biofuels we think there are going to be much more important in the environment that we are going to behave and the environment that we are going to make business in 2020 than today. We must be prepared and we have to be active in dealing with those types of problems; otherwise, we are going to face more problems than to use the opportunities that we can have.
A second set of problems that are going to become more important for us are the questions of governance, transparence, different stake holders affecting the company, social responsibility, corporate social responsibility and issues that are not as important in the past but are going to become more and more important in the corporate world.
A third thing that we would like to highlight in our scenario for 2020 is that we are going to face a continuous process of growth, especially driven by the growth in China, India and Brazil. In the oil sector and the gas sector, the growth of the China and India economies is going to affect in a way that they are going to become important importers of crude oil. However, given the current planned build capacity for refining, they also are going to become net exporters of diesel and gasoline.
The third thing... the fourth thing that we would like to highlight is that even though we are going to face a much cleaner and renewable energy matrix by 2020, oil and natural gas will continue to play a very important role in these energy matrix. We don't expect any decline in reserve/production ratio worldwide. We don't except any decline in production of oil and gas. We don't expect a big decline in the energy matrix of the fossil fuels sources of energy. However, in the liquid distribution fuels, we expect a much larger share of biofuels. We are expecting around 25% of the current demand for liquid for transportation is going to be supplied by biofuels by 2020.
As we are going to move ahead and move more and more in unconventional oil and more difficult areas for exploration, technologies are going to be more important in a strategic position. The ones that can command good technology with very cost efficient technology would have a better competitive position in the future. And as only 30% of the current proven reserves in the world are under concession rules, 70% are in the hands of national oil companies or with limited access to those reserves. We continue to think that geopolitical problems are going to play very important role in the oil and gas market in 2020.
In this scenario that yields more complexity and requires from the companies more and more adjustments to more difficult conditions, we have a vision for Petrobras. We want to be... we will be one of the five largest integrated energy companies in the world and the preferred choice among our stakeholders. There are some features that I would like to highlight in this vision for Petrobras. First, we want to grow. We have... we are in different rankings today between the 10th of the 15th company in different ranking. We want to move ahead. We want to move up, scale up in the rankings to go to the 5th first group of companies. We are giving signs that we want to grow, and we are going to grow and we think that we are going to grow more than the others. Second, we want to grow and be the preferred choice, which means that we are going to be growing but we want to be better and we want to be perceived as a better company. And third in this vision, we have the idea that we have different stakeholders. We have to be good and big for different stakeholders some times with different and contradictory objectives. This would require from us a balancing capacity that is going to be very hard to deal with, but this is the challenge that we are putting to ourselves and, as you know, challenge is our energy.
The main character is the features that we wanted to link to those... to this vision is we want to have a strong international presence. We are going to be more and more international company. We want to have a world scale prominence in biofuels. We want to keep and continue to be known as for our operational excellence in management, technology and human resource. We want to be a very profitable company. We want to keep the profitability as one target important for us. We want to be recognized as a benchmark in social and environmental responsibility and we are being committed to sustainable development. In the vision that we are presenting, we are increasing the demands on ourselves, but we think that those challenges are going to be important to prepare Petrobras to face the realities of 2020.
Our mission is to operate in a safe and profitable manner in Brazil and aboard with social and environmental responsibilities, providing products and services that meets clients' needs and that contributes to the development of Brazil and the countries in which we operate. We want to be good in what we are doing. We want to be the best that we can be in what we are doing.
We have some challenges, special challenge, capital discipline is one important theme. As I am going to show you later on, we have a CapEx of $112 billion for the next five years, 2008 to 2012. With this vision and this mission, $112 billion is one of the largest CapEx in the world right now, more than some companies that are much bigger than Petrobras.
We are put into ourselves some targets. We want to reduce 1%... at least 1% of our investment costs. Though we are considering in our calculations and hence we are going for $1 billion. We want to reduce this each year in 1% as a result of attrition. Reducing delays, reducing costs. 1% is not massive but 1% is $1.1 billion. We want to streamline our inventories, we want to have a better management of our inventories, we think that we can minimize inventories of products and inventories of materials that we use in our process. We want to decrease operating and administrative costs and we want to manage our portfolio in a more efficient way. We think that we can do better in the capital appraisal [ph] value. And we have been prepared to do that.
We see that one of the main constraints for the growth of the company is human resource. Not only Petrobras but several different companies are facing problems in the human resources area. And we want to emphasize and bring to the strategic level the human resources question. And we want to be recognized as an international benchmark for personnel management in the energy segment, having our employees as our most of valuable assets. We have developed policies for retaining talent that attract new talent and to move the capacity of the company to manage big projects. In this plan we have 454 big projects. We have thousands of projects in this line. And we need personnel; we need people to manage those projects.
Social responsibility: we also want to be a world-class reference for social responsibility. We think that the corporate social responsibility is one feature that's very important today for the sustainability in the long run of any private company in the world. We want to be recognized as a champion of social responsibility. On climate change we have programs, for sure we produce oil and we produce natural gas we can not minimize the carbon contents of natural gas and oil, but we can add more efficiencies in our process and in some of our products. And we want to reduce the total emissions that we can provide.
And then in the technology we want to be the world class contributors of technology that leads to the sustainable growth of the company: in the oil and natural gas, petrochemicals and biofuels industry.
Given those challenges, how's our strategy? Our strategy is, as the three pillars that we have already announced: integrated growth, profitability, social environment responsibility. Different from the previews that is planned right now we are emphasizing our business interest rather than the institutional organization of the company. Here we are defining strategies for business... national and international... that are going to be led by different parts of the company of the systems Petrobras, but are put together in the same type of business.
In the upstream business we want to grow our production in oil and gas reserves sustainably, being recognized for excellence in E&P operations, in Brazil and outside of Brazil. In the downstream and distribution and retailing, we want to expand integrated operations in refining, commercialization, logistics and distribution with focus in the Atlantic Basin. We are focusing right now our downstream activities in the Atlantic Basin. Brazil and outside of Brazil we want to develop and lead the Brazilian natural gas market and operate on an integrated basis in the gas and electric energy markets with a focus in South America. We are talking about integrated market for gas and energy in South America. We are talking in Brazil, Argentina, Paraguay, Uruguay, Bolivia, Ecuador, Peru, Venezuela... we are talking about South America. We want to expand operations in the petrochemicals in Brazil in South America on an integrated base with the Petrobras groups of business. This is a very important because what we are trying to do here is give a very clear sign that our extensions through the petrochemical sector is to get more value-added in the integration of this chain, the production chain of petrochemical products. It is movement that we see everywhere... integration of refining, first generation of petrochemical, second generation of chemical... these are very clear movements that we can see everywhere.
And finally, we want to have a very clear statement on our strategy on biofuels. We want separate and give you the idea that we have two different strategies for ethanol and for biodiesel. We want to operate on a global basis in biofuels for commercialization and logistics. Leading the domestic production of biodiesel and expanding participation in the ethanol segment.
Now, we are showing in very clear way that we have five different strategies for business, different segments that we are trying to develop.
Now projections, we have a view that the world would be growing at 4.3% a year, portions priority [ph]. Brazil... Latin America is going to grow 3.4, 3.9, a little bit less than the world, and Brazil at 4.0. Our estimation of foreign exchange is going to be 2.18. A comparison with the previous plan shows that we have pretty much kept the same type of environment that we had before. And the price as we have most of our revenues coming from the Brazilian markets, we are keeping the link, the masters link of the Brazilian prices and the national price, which means that we are going to keep the international price on average following the Brazilian prices, following the international price.
To project our revenues we are taking the same price $55 per barrel in 2008, $50 in 2009, $45 in 2010 and $35 2011 on. This means that we want to... we have a kind of marginal cost for expansion of the industry around $35 in the long run.
As I mentioned before, our CapEx is $112 billion ahead of $12.4 billion, $65 billion in E&P, 58% of the total capital. $13.8 billion in exploration, we are increasing very much our expenditures in exploration. We are saying that are our main growth driver is going to be the organic growth. We are going to be more, investing more on the exploratory rigs because we think that we can get better return in the exploratory rigs.
We have $29.6 billion in our refining, transportation, commercialization, $6.7 billion in gas and energy; $4.3 billion in petrochemicals; $2.6 billion in our retailing sector; $2.6 billion in our corporate investments, basically health, environment and safety, information technology and research and development. We have $1.5 billion in biofuels. $97.4 billion in Brazil, $15 billion outside of Brazil. 29% growth in comparison to the previous plan. 32% growth in upstream, 29% in refinery technology and commercialization, 30% increase in petrochemicals, 114% in biofuels.
These investments, $112.4 billion of investment, means on average $22.5 billion per year of investments over the next five years. We are going to invest $97.4 billion in Brazil, 65% of local contents, which means that we are going to be demanding from Brazilian producers $63.1 billion. We know that the Brazilian sector is already almost in full capacity. However, we think that they can... the investment in the downstream in the supply chain can speed up and then we can have the sector in Brazil [ph] able to respond to our demands. This is going to increase our demand in Brazil from the current $10 billion to $12.6 billion, which means that we are increasing 26% of the demand in the Brazilian supply.
What's the difference between the current plan and the previous one? $13.3 billion new project. Those new projects are mainly upstream in exploration production projects. More than $10 billion of those $13.3 billion are going to be allocated in exploration production projects. Exploration, our enhanced recovery techniques... for enhanced recovery for fuels with very high degree of exploitation, infrastructure for our production of upstream production and increasing our capacity for production of gas including infrastructure of the gas. Refining, we have faced pretty much an increasing capacity to manage condensate and produce LPG, which means to allow for the growth of the natural gas in Brazil and in petrochemicals, new units in the petrochemical complex in Rio de Janeiro.
We have $10.9 billion of cost increase. As you know, the market is very excited and very muted [ph] right now. We have delays and we have reconst... rebuilt of some of the contracts that we are trying to get right now. And we are expecting around $11 billion of cost increase in the previous plans that we have. $4.2 billion is the result of using a weak currency. Dollar is a weak currency as depreciation of the real right now. And we have... as we have some of our investment in reais, depreciation of the real yields $4.2 billion increase in our dollar denominated CapEx. And we have mainly as a result of the movement in time of some of our projects in the period between 2008 and 2012, we have a reduction in $2.4 billion of the previous project, nothing very significant in terms of strategy of our plan.
We have projects that are in different stages of definition. We have projects under the first evaluation, a conceptual design, base design implementation contract stage. As we move from one stage to another one, the more precise definition of the project sometimes increase costs. As a result of this, we are assuming an increase in $2.8 billion in our project. I am going to be very speed up [ph] in this strategy. But I'll be back in the question and answers if you want me to go in details.
Now production. We keep our 7... more than 7% growth per year until 2012. Our target for 2012 is 3.5 million barrels a day of production in Brazil and outside of Brazil oil and gas. And we think that... and we are projecting the forecast that our production for 2015 is 4.1 million barrels a day by 2015. The main difference that we have right now in relation to the past is in the international production because we have a change in the structure of the production in Venezuela from service contracts to production... partnerships in the production which means that we are going to get dividends and not production from our presence in Venezuela.
In Brazil, we keep the same level of production, 2.8 million barrels a day by 2015, 2.4 million barrels a day in 2012, around 20% above the domestic demand, which means that we are keeping the target of being self sufficient in the Brazilian production of oil until 2015.
Our lifting costs, projected lifting costs, we are projecting for 2012 of $6.13 per barrel of lifting costs without government participation in 2012, 3.5 our international lifting cost without government participation outside of Brazil. This reduction from the current 6.5, 6.6 comes from the increase in production and also in the impact of the foreign exchange variation in relation to the movement of the Brazilian... the reais denominated and U.S. denominative part of our operating cost.
Domestic product. We are projecting a growth of 2.9% a year in our domestic market for our product in Brazil. The market right now is around 1.8 million barrels a day of oil equivalent. We are projecting till 2010 2 million barrels a day, 2.3 million barrels a day by 2015, 2.7 million barrels a day by 2020. The largest rate of growth, the highest rate of growth is going to be on diesel. We think that Brazil would continue to be pretty much a diesel country and we are considering delaying [ph] this whole projection. The substitution that we have already very significant way in the gasoline by... substitution by ethanol in the Brazilian market right now. The Brazilian market is more than 45% of the Brazilian market for gasoline today if provided by ethanol.
The breakdown of the $29.6 billion investment in downstream, we have to highlight that $8 billion is going to be on fuel quality to reduce sulfur emissions. This is not going to add any new capacity. It's going to have only the impact on reduction of sulfur emissions to meet the requirements of the Brazilian market and the markets in the Atlantic Basin. $2.7 billion on conversion to improve the use of the Brazilian heavy oil, $3.9 billion in expansion of our refining capacity; this is pretty much the refinery in the Northeast of Brazil, the refinery at Abrue e Lima and the petrochemical complex in Rio de Janeiro. Now the petrochemical complex is not in here, it is here, I don't think so. It's in petrochemical. Yes.
The flow of product we are going to be producing by 2012 is 2.4 million barrels a day in Brazil, 1.8 we are going to use in Brazil, the throughput in Brazil is going to be 2 million barrels a day, we are going to be importing 2008 thousand barrels a day of imported light oil to blend with our heavy oil and produce the light products that we need in Brazil, we are going to be on oil export, net oil exporter of this country, we are going to be exporting net 5,000 barrels a day, and we are going to be selling to international market 762,000 barrels a day by 2012. Those 762,000 barrels a day would come: 256 from our international production, 296 from our export from Brazil to the markets to our refineries outside of Brazil, a 158 through our exports of crude oils to the world market and through our... throughputs of our refineries outside of Brazil, which means that we are selling 762 of crude oil plus oil products.
On refining costs, we are expecting increase in our refining cost due to the greater complexity of our refineries as we going to add new hydro treatment yields than new coker units. The throughput is going to increase from the current around 2,000 barrels a day... 2 million barrels a day to 3 million barrels a day by 2016, which means that we are going to add 1 million barrels a day of throughput in Brazil... in Brazil and outside of Brazil. We want to increase our market share in the distribution in Brazil from the current 31% to 41% in Brazil from 24% to 36% in retailing business in Brazil.
On the petrochemicals we want to expand our presence in the production, in the first and second generation process. We want to increase our presence in the petrochemical sector adding value to the product of the oil refineries. We want to maximize the use of the occurrence of oil refineries such not only the production, we want also to be important in the development of technology. Today the large majority of the petrochemical production in the world comes from the use of natural gas and/or NASA.
We are developing technology for crude catalyst correcting that may develop the production of petrochemical products from crude oil, heavy crude oil. We are going to use the heavy crude oil that we produce through in-house petrochemical complex it reduce petrochemical product. And we want to develop this technology. And also we want to be very important in the development of technology for biodegradable polymers and biopolymers.
Gas energy; we have a big challenge in the gas energy. First, the current situation of the gas energy in Brazil, the demand of gas in Brazil is 46.3 million barrels a day... million cubic meters per day. We are projecting a growth of 19.4% until 2012. We are going to reach 2012 with a 134 million cubic meters a day of demand. 48 million cubic meters per day is for thermal-electric gas fire plant. However it's important to mention that these 48 million cubic meters per day is a potential demand, it's not an actual demand. As you know Brazil is pretty much a hydroelectric country. 87% of the power generation in Brazil comes from hydroelectric plant, the thermal-electric gas fire plants are dispatched only and only when you don't have enough rain and enough water in our reservoirs which means that you don't have to dispatch the thermo-electric plant a 100% of the time, 100% of the plant.
However, we are considering here the total demand under the assumption that our thermoelectric plant... our Brazilians, not only Petrobras... are going to dispatch 100% of the time, 100% of the system.
42.1 million cubic meters per day is the demand from the industry and we have 43.9 of other users. 134 million cubic meters per day with a very persistent condition that it's a potential demand, is not the actual demand. What we should do, we have to develop a flexible supply.
As you know, the natural gas is different from the oil, require the infrastructure, the building of the infrastructure to bring the molecule from the well to the market. We are increasing the supply, the availability of natural gas from our upstream, from our exploration production. We are going to be supplying to the markets at 72.9 million cubic meters per day. We keep our contract with Bolivia. We have a contract with Bolivia until 2019, 30 million cubic meters per day. We have a 24 million cubic meters per day of take or pay allowing us to transport up to 30 million cubic meters per day. That is the shipper pay that we have with Bolivia. We have 6 million barrels a day... 6 million cubic meters per day of flexibility in the contracts with Bolivia. Plus we are adding regasification capacity in Brazil of 31.1 million cubic meters per day.
In our current plant we have a 20 million cubic meters per day of regasification units that can bring LNG to Brazil when we need it which means that we have 37.1 million cubic meters per day in our supply that continues to burn what's going to happen in our demand. Because 48 million cubic meters per day is potential demand for... that is not actual demand for Petrobras. These are the markets. What's going to be the sales of Petrobras. We think that we are going to sell 57 million cubic units per day in 2008, the 82 million cubic meters per day by 2012 is our sale to the mark.
Power generation. As you know we have several thermo-electric plants in the portfolio of Petrobras. We have the capacity of generating electricity that's greater than what we have here. We have here only the sales, the amount of power that we are selling to the Brazilian market. By 2008 we are going to sell 3.07000 megawatts in Brazil. We think that we can increase these sales to 5.400 megawatts, 3.7 from our thermoelectric plant after we closed the cycle of some of them plus additional capacity of thermoelectricity generation from biomass from bio... from a small power generation facility that we have in our distribution company.
In the biofuels, as I mentioned, we have two strategies that are different. One is for ethanol that in ethanol we want to be participating in the domestic production chain to develop the international markets and our focus is on logistics and sales.
In the biodiesel, however, our strategy is on production of biodiesel meeting the requirements of the Brazilian market and getting all the opportunities to capitalize its opportunities to the international market as well. We also will know that on the ethanol and biodiesel markets, we have a very strong investment in technology development, and the development of technology is going play a very important strategic role in the future. And as such, we want to develop these technologies ahead of our competitors in order to get for us competitive advantage in the future.
$1.5 billion is now our investment in biofuels. Those numbers are important for the Brazilian market. With biodiesel, we plan to be meeting the requirement for 2% with mandatory use of biodiesel in 2008 and 5% of mandatory use of biodiesel by 2013. Ethanol export, we are planning to export mainly to Japan, but not only to Japan, 4.7 billion... 4.7 million liters per year by 2012.
On the financials, we have a reduction on our cost of return on capital employed from 16 to 14. This reduction comes from different source. The first one, I would say, that one very important, is the increase in cost of the investments as we increase the capital. We have reduction on the return. The second one is the fact that we are increasing our investment in exploration, and the result of the exploration is not going to come on stream during the period of our Strategic Plan, come on stream after 2012, which means that we are going to have the investments without the return.
The third reason is that we have investment infrastructure mainly on the natural gas market, which give us opportunity to get the monetization of our reserves of natural gas currently discovered and the future discovers that we may have after our exploratory results. On the other hand, the reduction of the return on capital employed occurs at the same time that our cost of capital went down, which means that the result, final results to our shareholders is equivalent, almost equivalent.
Our long-term funding, we are going to need a little bit more activity on increasing our debt from $3.1 billion average per year to $3.9 billion a year in this plan. Our cash balance is going to be a little bit less. We are going to project a final year cash balance of $3.1 billion, which means that we are going to have a strict control of our cash balance. The leverage here is... the reduction on the leverage ratio from 25% to 20% is pretty much the result of depreciation of the real. In the past, we suffered a lot because our leverage ratio was going up as a result of the depreciation of the real because our assets are in reais and as we had the depreciation of reais, our assets in dollars went down and our leverage ratio went up and appears that we had a very much difficult financial situation. However, in real terms, we didn't have big change in the company. The same thing that is happening right now. As the real is appreciating, the capital in reais becomes greater in dollars and we have a reduction of the leverage ratio as our product changing effect.
The free operating cash flow is going to be around $1.4 billion per year.
The EVA, economic current value-added above the cost of capital is going to be $81.5 billion for this CapEx in the period of 2007 to 2012. $103 billion will be added to the value of the company after the cost of capital in 2015.
Cash uses and source. We are going to invest $112.4 billion plus $11.4 billion of amortizations during the period, which means that we are going to be using after the cash, the operational cash flow $123.8 billion.
We think that we can generate with the price curves that I mentioned in the beginning $104.4 billion of cash flow after payment of dividend. This is after dividend payment. And we can raise from the market $19.4 billion, which means that we are projecting a small increase of $8 billion in our total debt because we are going to be raising $19.4 billion and amortizing $11.4 billion of our debt. We have stronger and stricter targets for health-based environment targets. We have more challenging targets for socio environmental responsibility measurement. We have more strict and more demanding targets for human resources and the impact on the labor market in Brazil is going to be very weak.
We think that this CapEx would imply in the supply chain of the investors... of the companies that are going to give introducing to our demand 228,000 jobs per year on average directly related to the supply chain. The total workforce related to this direct and indirect is going to be something around 917,000 jobs per year. The value added in relation to the Brazilian GDP in Brazil is going to be somewhere around 246 billion reais per year, which is somewhere around 10% of Brazilian GDP.
This is a very challenging plan, but as we say, challenge is our energy. It is a viable plan. It is a reasonable plan and we think that we can make it. Thank you.
Question And Answer Session
Unidentified Company Representative
[Operator Instructions]. Let me check if someone has a question here in the audience. First there.
Unidentified Analyst
On the reserves, do you guys foresee it necessary to support those production targets in 2012 and 2015? Now the second one is regarding debt. You said that --
Unidentified Company Representative
Could you repeat please?
Unidentified Analyst
Sure. The question was regarding the production targets, what amount of crude reserves do you guys foresee to be necessary to support the 2012 and 2015 targets? The second one was regarding the incremental debt load about 8 billion, how much... how do you guys see that being loaded from now to 2012 what's the curve, and with that is the if you guys are looking to extend the maturity of your average life of your debt, thank you.
José Sergio Gabrielli de Azevedo - President and Chief Executive Officer
I'm going to leave the debt question to our CFO, and I would talk a little bit about production and proven reserves. Our proven reserves production ratio is around 19 years. We are going to increase our production from the current 2.3 to 3.5 in 2012 and 4.5 in 2015. Our plan is to have a internal recovery rates... how to call it... replacement rate, the replacement ratio about one, which means that we are going to increase our reserves in the minimal and the same amount that we have produced until 2015. And we are probably, this is not our target, but this is our projection that we are going to be above 15 years of the reserve production ratio by 2018.
Almir Guilherme Barbassa - Chief Financial Officer and Investor Relations Director
Regarding the financing of the extra $8 billion of cash, we are going to leave it to finance this plan. Petrobras has a long experience to access every different market. And but as we got the investment grade rating the capital market becomes more accessible and a deeper pocket. So, these maybe the main source but would not be for sure the only source. Month long [ph], sometime is more competitive, this is... there are situation as we buy lots of large very expensive products we may get special conditions for ECA financing. DNBS in Brazil is a good source, we saw very competitive price, so we have really very many different opportunities here. Probably the capital market is going to be the one that would be... can have the chance to present the largest growth in the set of sources we have.
Unidentified Company Representative
Another question here.
Christian Audi - Santander
Gabrielli, Christian Audi with Santander. A couple of questions, going back to the point of return on capital employed, you made the point that the drop from 14 to 16 part of it was your cost of capital has gone down, part of it is we have cost going up. I was wondering because that's a recurring question among investors your ability to maintain returns. So, can you talk a little bit more, elaborate a bit more in terms of... we have seen the drop here but is the trend one that should we expect a continuing downward trend or given the nature of the projects we have that maybe we don't yet see because they go beyond 2015 should we maybe expect a turnaround, but any color... additional color that you could, because I think it would be very helpful?
José Sergio Gabrielli de Azevedo - President and Chief Executive Officer
As you know, if you get production color for any type of oil and gas, we are going to have a kind of hunt, of course, we will reach a peak and then go down. If you get our investment plan, they have the same type of shape, the same shape. We have investments that goes up and then reduce. When you calculate the return on capital employed, we have a cut at the end of the day. And we have these cuts sometimes in each... in some of the products in the peak of the investment without getting any results. The average time between the first indication that you have some volume and the first oil, the average time is eight years. Eight years. Which means that we have, on average, an investment period without return for eight years for big oil prices. When you take, on top of that, cost increases, the capital and the investment during these periods of great event and their path, is going up is growing. A reduce... increasing the capital without the return. Third, when you take in some of the investment that we are making is on infrastructure for your production. The result will come in 15 years. Pipeline, big transportation systems of our production areas, drilling rigs that we are buying that is going to be operating for 10 to 15 years. They are going to have the impact on our return after 2012. And our return on capital employed is calculated as an accounting measure from '08 to '12. I think that's the main reason why we have this reduction.
Christian Audi - Santander
And so just as a follow-up, so, what's the future?
José Sergio Gabrielli de Azevedo - President and Chief Executive Officer
Yes the future. It is very hard to make an assumption about the future after 2012. As you know, we are putting targets for 2012 and forecasts for 2015. It's difficult to calculate after 2012, it is not those numbers because they are going to depend sometimes on exploratory factors, they are going to depend on the integration of the portfolio of infrastructure and production. There is some delay that we may have in the integration of the different parts of the change mainly on natural gas because natural gas necessarily you have to look at the change from the well to the market and the visibility of something after 2012, today it is not as much as we have until 2012. That's the point that we cannot have these calculations.
Christian Audi - Santander
And just a second question, cost increases continue to put pressure in oil companies, as we've seen here it is also impacting you, can you talk in general terms, do you expect this trend it has been the case in the past five years to continue non-stop, are we reaching a point that maybe plateau, not grow as much as in the past or now should we expect the continuing cost pressures to go on?
José Sergio Gabrielli de Azevedo - President and Chief Executive Officer
Until two to three years ago what we saw in the past was that the increase in the cost of the supply chain would follow the increase in price of oil with two years delay. We had an increase in price of oil two years later you get the impact on the supply chain. In the last three years these delay is collapsing. Right now it's almost at the same time, it is almost contemporary. The increase in price of oil will immediately go through the supply chain. However, in some of the products, we start to see some indications that the capacity is growing and we are maybe finding in some of those products reaching the peak price and we are going to stay plateau of high price during certain time until the production would increase and then we are going to see some price reductions. But we don't forecast these right now. But we think... we don't think that is going to be forever the increase in cost. That's for sure... transfer a part of all your income from the oil companies to the suppliers.
Unidentified Company Representative
And now we have a question from the telephone from conference call [ph].
Operator
Thank you. That question is coming from Frank McGann of Merrill Lynch. Please go ahead.
Frank J. McGann - Merrill Lynch
Yes, good morning. Just a question on the international side. I was wondering if you could give a little bit more color as to the drop. I assume it's because there is less coming not only from Venezuela, but perhaps an acquisition that was built into the prior numbers, but perhaps you could just give a little bit of color on that.
José Sergio Gabrielli de Azevedo - President and Chief Executive Officer
On international production, first, we change some of our policies that rather than trying to get some of our reserves through acquisition, we are relying much more now on these plans on actual productivity internationally. Second, we have a change in the structure of the business in Venezuela that right now we have a mixed company in which we are shareholder and we receive dividend from this company... those companies and not... we don't share production; we get dividend. And this affects our production. And third, we have some movement on time of some of our production no longer due. The increased investment is a result of mainly from the idea that we are renting drilling rigs, two drilling rigs for our international activity. I think two, one from Columbia is back in Columbia, the other one in Gulf of Mexico, United States of America.
Unidentified Company Representative
Okay. [Operator Instructions]. Let me check within the audience. Yes, we have another one.
Unidentified Analyst
I think you want to [indiscernible]. Just a question on given that you are increasing your investments in the natural gas segment, can you comment on your pricing policy here, given let's say for the thermoelectric since they don't have fixed volumes, will you charge higher prices here and do you maintain your view that natural gas prices should be aligned to fuel oil prices?
José Sergio Gabrielli de Azevedo - President and Chief Executive Officer
Yes, we have... we are trying to introduce in the natural gas market in Brazil several types of different types of contracts to allow for the flexibility in the Brazilian natural gas market. We are offering different prices for different contracts. We don't have a general pricing quality. We discuss contract by contract with each one of our purchaser. The idea is to have contracts that are firm commitments that we have to provide a certain amount of natural gas and these are going to have one price. The other type of contract is the one that we may supply certain quantity of natural gas or we may supply the alternative fuel. This is going to have a different price. The third type of contract is that we may supply or not the natural gas, and the third one is the spot market. That's the smaller one. Each one of those have different ID, different types of price.
Also, we are trying to put an idea that we have in the price of gas two different components. One is the return for the infrastructure, which is fixed, pipeline and so on. The other part is the price of the molecule that should be linked to the alternative fuel. That may be fuel oil, may be diesel, may be water. This is natural gas. In the electric power generation market, it's different. In the Brazilian system, you have auction for the supply of energy for the next 2, next 3, next 5 years. There is an auction that the distributors buy energy from the generators, and we had already sold in those auctions around 2000 megawatts and also we have what is called the free market for energy that is going to be when we have access to supply our excess demand, the ones, the consumers, the big consumers that don't have a contract, they can go to this market and then the price is going to be decided. We actually don't have really one pricing policy for natural gas and energy because the market is very complex.
Mark McCarthy - Bear Stearns
Hi, this is Mark McCarthy from Bear Stearns. Just following up on Frank's question, you discussed the reasons for the changes to the international targets, but they are staggering, right? They are a 30% drop from what you were working with before. I am assuming that there is an error in the table that was presented of about 230,000 barrels a day. But even with that, the drop in 2015 is 320,000 barrels a day. That's 30% or something like that. So most notably, I mean if you are now... are you not considering Venezuela? Have you pushed out the exploration success in Angola? Can you specifically address that's not... that's something material. The other question that I had is every strategic plan has some blend of cost increases and new projects. It seems to me that each new strategic plan has come with less and less detail. This strategic plan came out with no divisional breakdown of where the new projects or what really the new projects are. Can you tell us within upstream, which is 50% of the spending, what is new and can you tell us how much of the $13 billion or so of CapEx growth is attributable to that. And I know we have Celso here who is... if you are the architect, he is the engineer. If we could maybe hear from him on some of the specific numbers.
Celso Fernando Lucchesi - Business Strategy and Performance
Mark, first I think the numbers really not reach to 285, but then we... I don't know exactly number, but Angola, for example, is one very clear example. Angola, for example, is a very clear case that what I was talking about. We are increasing our investment in Angola, but we are not expecting any results in the next five years because we have in exploration here.
Unidentified Analyst
[Question Inaudible]
Celso Fernando Lucchesi - Business Strategy and Performance
No, no, no. We never had... production, we never had... 1 million, we have 500 something.
Unidentified Analyst
[Question Inaudible]
Celso Fernando Lucchesi - Business Strategy and Performance
Oil equivalent, the oil equivalent. Okay.
Unidentified Analyst
[Question Inaudible]
Celso Fernando Lucchesi - Business Strategy and Performance
Yes, that's true.
Unidentified Analyst
[Question Inaudible]
Celso Fernando Lucchesi - Business Strategy and Performance
Yes, I know I cannot give you the details of the notes, because I don't have it right now. But what I know in general trend is that we have really an increased investment in exploration international. Angola is one big example of that. Our investment in Angola are going to increase a lot, but the results are going to come on stream maybe next five years, not less than that. Our investment in Nigeria is going to... in Nigeria, you have pretty much... we are not operators. We have to follow the operators. The cost overruns [ph] are really amazing in Nigeria, much more than anywhere else.
Unidentified Analyst
[Question Inaudible].
Unidentified Company Representative
No, it's not a cost to recover, because we have participation.
Unidentified Analyst
[Question Inaudible].
José Sergio Gabrielli de Azevedo - President and Chief Executive Officer
No, no, no, Kabul is there. Kabul was 100,000 barrels a day. That's it. Linked to the refinery. There is no big deal in Kabul.
Unidentified Analyst
[Question Inaudible].
José Sergio Gabrielli de Azevedo - President and Chief Executive Officer
It's not Kabul that's the problem. The problem mainly is that we had 65% of our production in Venezuela as out of our production, because right now the consequently in Venezuela is that we have a dividend policy, not anymore the production.
The investment increased, and the productions really declined, and we have also not relied any acquisition of reserves, proven reserves. We are moving our investments in our international in exploratory rigs which means that we may have nothing. But we have to rely in our knowledge.
Unidentified Analyst
It doesn't make a whole lot of sense to me, to be honest with you. You have 200,000 barrels a day within the next five years that's out of the plan?
José Sergio Gabrielli de Azevedo - President and Chief Executive Officer
We can't now to give you the numbers right now. I don't have the number in my mind... on top of my mind.
Unidentified Analyst
I don't know, Celso, if you have any thoughts about this. If you can shed some light?
Celso Fernando Lucchesi - Business Strategy and Performance
They are levitated, at this blue number.
Unidentified Analyst
The green one is wrong, right, it's 55.12... 515...
Celso Fernando Lucchesi - Business Strategy and Performance
It's 515.
Unidentified Analyst
Right. Which is down from 740 before. So that's... the drop is 30%
[Multiple Speakers].
José Sergio Gabrielli de Azevedo - President and Chief Executive Officer
Certainly, there the drop is big and I think the main reason is, the delay, the changing in time and the Venezuela situation, that's what I am assuming. I don't have the numbers right; I don't have it on top of my mind. Unless, because it has... [indiscernible]
[Multiple Speakers].
Unidentified Analyst
And just following up on which new projects have been added to E&P and how much of the $13 million goes to it?
José Sergio Gabrielli de Azevedo - President and Chief Executive Officer
Rigs exploration. Exploration and what we call recash [ph], which is enhanced operational recovery.
Unidentified Analyst
And of the $13 billion how much is attributable to it, so you have no new projects? You have higher spending... higher exploratory spending. The additional project in exploration?
José Sergio Gabrielli de Azevedo - President and Chief Executive Officer
It really the exploration is not aboard in different countries at Turkey, Angola, United States then several countries in Latin America. In Brazil there are much more aggressive campaigns to... for result and see what the digest rate has trapped the concessions we have in Brazil. That's the growth and also the cost of the exploration especially training is reflected also in these numbers. Exploration is --
Unidentified Analyst
So exploration is now defined as a new project?
José Sergio Gabrielli de Azevedo - President and Chief Executive Officer
Yes. That always was new project? New exploration... new activities in exploration.
Unidentified Analyst
Okay. Do you know which ... what... of the $13 billion how much is that?
José Sergio Gabrielli de Azevedo - President and Chief Executive Officer
Sorry, we call new projects, the project that were not released the last direction of the plan one year ago, but exploration, in the same concession we drilled a well, you have the result, and you can forecast that the cost for evaluation $8 million. The next well, we have to review this numbers and the planning of the concession. So, new projects could mean new wells in the old concessions that we previously hidden forecast, okay. What should you do is try to get the numbers... precise numbers and then release the... I hope that's until the end of this actions.
Unidentified Analyst
I am trying to get the numbers here?
Unidentified Company Representative
Okay I think we have a questions from Internet again... from conference call, sorry.
Operator
Thank you our next question is coming from Keil de Barros of Meresk [ph]. Please go ahead.
Unidentified Analyst
Yes. I would like to ask you about the assumptions that you made on the blend curve and could you please elaborate a bit on that?
Unidentified Company Representative
Would you repeat again please louder?
Unidentified Analyst
Yes. I would like to ask you about the assumptions made on the price of oil the blend curve that you presented?
José Sergio Gabrielli de Azevedo - President and Chief Executive Officer
We actually we are taking in the long run a little bit of below what is being considered in the market as the marginal cost of expansion which is the cost for the new areas of exploration of non-conventional oil and the cost... the increasing cost in the conventional oil in areas that are more difficult to introduce, to bring to production in a commercial way. This is between $35 and $40 per barrel, and we are taking $35 in the minimum level for the long run. In the short run we are increasing the price of our projections, not projections, but the numbers that we are using for our revenue calculations because the prices of the last two years were above... much above what we had in our previous plan. And we continue to be in the lower bracket of the forecast of most of the analysis worldwide. January the 1st, I think the first quarter of the distribution if I remember the cost that we have in our strategic plan of several dozens of different type assets.
Unidentified Analyst
Okay. Thank you.
Unidentified Company Representative
Okay, you have a question here in the audience.
Christian Audi - Santander
Christian Audi, again, with Santander. Gabrielli three question, in terms of production when we look at the 2015 target there was a small drop in domestic gas production. I was wondering versus what the target was in the last plan if you could explain what changed there. And secondly, if you could give us an update as we look out 2010 and '11 any updates on 2.55, 2.57, 2.56 and the very last is when we look at discoveries. I know there is no news in terms of pre-solds you continue to do the testing. Am I correct to assume that this plan, from an infrastructure point of view, does not incorporate anything at all related to pre-sold?
José Sergio Gabrielli de Azevedo - President and Chief Executive Officer
Yes, you're right. In this plan we are not incorporating any big changes that we may have to face if we have factors and that results at that. 3.65 to 3.67 we are redesigning the process of bidding. We have already some offers in the new model and we are facing all as to very high price. We are in discussions. We're for sure we assume that they have at least one year delay for 3.65 and 3.57. We are trying to anticipate the 3.56 to get the production out of the 3.56 to cover part of the production of 3.65 and 3.67. In 2012, I don't have the specific number but I guess that is result of somewhat delays on the first gas of Santos, probably that's going to see impact in 2012. But I am not sure. I don't have the specifics but I assume. I know that we have some delays in the first gas in Santos and then this probably would affect 2012.
Christian Audi - Santander
And so just as a follow up, how concerned are you in that 2010, 2011 period of really having, from an oil production growth point of view, a pretty flattish sequential growth if we can really get 56 accelerated?
José Sergio Gabrielli de Azevedo - President and Chief Executive Officer
No, because there no... P-65, P-67 would affect 2011, not 2010, end of 2011, I think. There is no impact on 2010. And if we can get P-56, then we are going to have the production of P-56 at the end of 2011. Once we head on 2010 and on the previous plan, I don't think that there is big change in the previous plan. I don't think there is any big change while the platforms are coming on stream in 2010. To have the platforms... the previous one. I don't think they are a big change for 2010. That's the best --
Unidentified Analyst
[Question Inaudible]
José Sergio Gabrielli de Azevedo - President and Chief Executive Officer
40K. The difference is 40,000. No new.
Unidentified Analyst
[Question Inaudible]
José Sergio Gabrielli de Azevedo - President and Chief Executive Officer
Yes, 2010 we have only P-57 here, Jubarte Phase II, that's delayed, indefinite delay.
Unidentified Analyst
[Question Inaudible].
José Sergio Gabrielli de Azevedo - President and Chief Executive Officer
Yes.
Unidentified Analyst
Almir, you have been the moneyman at Petrobras for a long time. You have got now more than $100 billion to spend, and in two years time, that number has gone up double. About... I can't remember... maybe a year ago for the first time you outlined a 5% buyback program by Petrobras. Buyback shares of the preferreds. The discount of the preferreds is now for some reason a staggering 15% and yet there is no mention of this $100 billion plan of an idea to buy back some stock, why?
Almir Guilherme Barbassa - Chief Financial Officer and Investor Relations Director
Yes, we approved the $2 billion buyback, share buyback at the end of last year and it prevails for one year. So we have till the end of the year to see what to do.
Unidentified Analyst
[Question Inaudible].
Almir Guilherme Barbassa - Chief Financial Officer and Investor Relations Director
No, no. It's not a question. It is a time of implementation we have for such a program. Reviewing this according to the new plan, we are going to have more expenditure and the reason we had to do share buyback was the availability of cash. As you saw, we are going to need an extra $8 billion of cash to support this new plan. So we have to consider altogether if we are going to implement or not. The chances are lower at this moment. Costs have increased. We are going to spend $10 billion more due to the costs. Since last year, since we released the plan of 7/11, now in the plan 8/12 is an extra $10 billion. And the project for the equity return is about the same, although the loss has reduced 2 percentage points. Our capital cost has decreased, so they pay to the equity... the return to the equity is kept and our average return has been very high. Of course, this plan is based on very conservative price. As we go to the real world selling oil price $60 or $78 a barrel, we are make much more money investing in new projects than buying back. So I believe for the average is better to keep growing and producing more.
Unidentified Analyst
Last year I asked you the funny question which came first, the oil price change or the CapEx change. I work out a little bit of math to make sure that when you make your oil price adjustments, everything balances out. So you are saying really that there is no room in the budget, right? But arguably, if you change the oil price by $1, you'd pay for the whole buyback program. And arguably, working with $35 Brent long term or even with your curve, you said it yourself, it's very conservative. So to me, if you are realizing a lower return on equity... return on capital, might not that be an opportunity to take some of the equity capital off the table?
Almir Guilherme Barbassa - Chief Financial Officer and Investor Relations Director
Yes, there is --
Unidentified Analyst
Especially when the discount is at 16%.
Almir Guilherme Barbassa - Chief Financial Officer and Investor Relations Director
Yes, I am not saying that we are not going to buy some share back, but because we have... we still have some chance to improve the return on equity by increasing our debt. Our leverage is very... is below our target. Our target was to be between 25% and 35% in the leverage. We are below 20%. So there is room there to increase that and, in this way, we can improve even further the return on equity. So, but there is an important change here is the extra expenditure we are going to have in the next five years.
Unidentified Company Representative
In general numbers, we have around 4% of the company we are paying as dividends or payout 4%, around 4% plus between 7%, 8% of growth per year. We are saying to our shareholders that we are giving back to shareholders in terms of value 4% in dividend plus 8% growth per year plus the reduction of capital cost, which gives more return to the shareholders.
Unidentified Company Representative
Okay. The last question here.
Unidentified Analyst
Just two final questions Gabrielli. Ethanol, you made it clear that you're strategy is not to be a producer but rather to facilitate domestic producers and participate on the logistics and infrastructure. I was just curious why not pursue the production side of things where the rationale is there. And then lastly, on the distribution side, you have very aggressive targets for BR's market share really jumping a lot over a period of five years. Is there any... could you elaborate a little bit? Is there any major strategy change because that's a big jump?
José Sergio Gabrielli de Azevedo - President and Chief Executive Officer
No, we are not planning acquisition in the BR side. No acquisition. There is only organic growth. We had already an acquisition on... it was only a part of the pyramid in the northeast of Brazil... northeast of Brazil. On the ethanol, the Brazilian ethanol market, producing market, is very consolidated in Brazil. There are more than 300 producers, private producers, more than 300 right now. We have probably around more double this number of producers of ethanol in Brazil. Petrobras is not a producer of ethanol. We have never produced it, never know... we haven't had one with smaller experience in production of ethanol, but we have right now mainly with the Japanese trading companies some structures that we are trying to get up to the production that we call a bio-energetic complex. There are new producers dedicated to ethanol more than to sugar that are going to produce mainly to the exports markets and not to the domestic market. And that's going to be linked to long term supply contracts. Petrobras may have, in those types of projects, a small share participation to guarantee the long-term contracts but not as a operational partner of the production. On the biodiesel it's different because biodiesel is a market that's being due right now, a very infant type of market.
Unidentified Company Representative
Okay you have another question from conference call.
Operator
Thank you. Our next question is coming from Gustavo Gattass of UBS Pactual. Please go ahead.
Gustavo Gattass - UBS Pactual
: Hi. Just wanted to follow-up on, I think it was Christian's question regarding, in fact that nothing is there. I was wondering here in the event that things go wrong disgusting, in the event that you have some sort of positive news on the exploration side on this one. I know it may be too early but can you give us an idea of how you would actually see on the strategic plan shifting to accommodate a shift towards that sort of production or is that something that's probably going to be even beyond the next CapEx plan that we are going to be seeing next year. And if you do have any updates on that field or even cash at held [ph] could you actually share them with us?
José Sergio Gabrielli de Azevedo - President and Chief Executive Officer
The presold is not in our plan because the numbers in that we have are not final. And we are not considering any of the facility that we need to develop, and any of the new technology that we have to apply. This has... will require a completely different, probably if the numbers are confirmed completely different solution and production plan. It's not in our current strategic plan.
Gustavo Gattass - UBS Pactual
Okay. No further questions.
José Sergio Gabrielli de Azevedo - President and Chief Executive Officer
I cannot say things going to affect, because we don't know, we don't know.
Gustavo Gattass - UBS Pactual
Okay. Thank you.
Operator
Okay no further questions in the audience as well. Okay, I request to Mr. Gabrielli for closing remarks.
José Sergio Gabrielli de Azevedo - President and Chief Executive Officer
Well, I will plans... I am trying to get the numbers that Mark McCarthy asked and they could not get us numbers but I'll send to you... to anybody that wants to know.
I would thank you for your attention. I hope that we can respond all your questions and I know that we are going to have more and more questions which is very good. But we are now open to continue release of all the information that we may have for your enlightenment. Thank you.
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