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Vale SA (VALE5), the world’s largest iron-ore producer, hired Bank of Nova Scotia and Citigroup Inc. (C) to sell its oil and natural gas assets in Brazil as it focuses on metals production, according to three people familiar with the matter.
The Rio de Janeiro-based company’s stakes in the oil fields, located both within Brazil and offshore, may be worth as much as $1 billion, said one of the people, who asked not to be identified because the negotiations are private.
Vale Chief Executive Officer Murilo Ferreira, who took over from Roger Agnelli a year ago, is focusing on returning capital to investors as the company’s profit margins shrink because of lower prices for iron ore and metals. The company exited the kaolin mineral business earlier this month after selling a 61.5 percent stake in its Cadam SA unit, which operates an open-pit mine in the Brazilian state of Amapa, for $30.1 million.
“Vale’s non iron-ore assets still didn’t give the expected returns,” Leonardo Brito, an equity analyst at hedge fund Teorica Investimentos, said today in a telephone interview from Rio de Janeiro. “Vale is trying to reduce investments and instead start increasing its dividends.”
An official at Citigroup in Sao Paulo, who can’t be named under corporate policy, declined to comment. A Vale official in Rio didn’t have an immediate response when contacted by Bloomberg News today. Scotiabank spokesman Joe Konecny also didn’t immediately have a comment when reached by telephone.
Ferreira told reporters May 3 that the company expected to finish by the end of June a study on whether to sell its oil and gas unit. Earlier this year, he said that the company won’t take part in any new oil block auctions in Brazil or elsewhere.
“We are constantly looking at and analyzing our assets, not only in relation to their efficiency but also considering its scale,” Ferreira told reporters Feb. 16. “Smaller assets are always more complex for us to manage,” he said.
Vale entered the hydrocarbon exploration business in Brazil in 2007 and has stakes in both onshore and offshore blocks, according to an April 17 20-F filing with the U.S. Securities and Exchange Commission.
“We believe that natural gas will play an important role in the global energy matrix in the future, given its advantages of lower carbon emissions and greater flexibility with regard to power generation,” Vale said in the filing.
Vale said in 2010 that it certified oil and natural gas resources equivalent to 210 million barrels of oil, with potential to produce 58,000 barrels a day in 2017. The company has 23 offshore blocks in 14 concessions in Brazil’s Santos, Espirito Santo and Para-Maranhao basins and two onshore concessions in the Parnaiba basin, Vale said at the time.
Petroleo Brasileiro SA (PETR4), Royal Dutch Shell Plc (RDSA), and Repsol YPF SA are among Vale’s partners in the concessions, according to data from the Brazilian oil regulator known as ANP.
Vale dropped 3.7 percent to 34.78 reais at the close in Sao Paulo today, the lowest level since September 2009. The stock declined about 18 percent in the past 12 months, more than the 15 percent drop in the Brazilian benchmark Bovespa index.
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