Bloomberg News

Petrobras Asset Sales Fund Deep-Water Oil Discoveries

December 06, 2012

Petroleo Brasileiro SA (PETR4), the world’s biggest producer of oil in deep waters, is accelerating asset sales in Brazil as it seeks to fund development of the largest crude finds in the past decade.

Petrobras, as the Rio de Janeiro-based company is known, said last week it agreed to sell its minority stake in two heavy-oil fields to Billionaire Eike Batista’s OGX Petroleo & Gas Participacoes SA for $270 million. The deal followed the company’s decision last month to transfer 30 percent stakes in three offshore properties to QGEP Participacoes SA (QGEP3) to reduce its share of the investments.

The state-run producer announced in June it’s seeking to raise as much as $14.8 billion through asset sales and restructuring to fund deep-water oil discoveries that may hold more than 50 billion barrels of oil. In addition to assets already sold in Brazil, Chief Executive Officer Maria das Gracas Foster said in October the company is “close” to selling part of its Gulf of Mexico properties for as much as $8 billion.

“They are gathering resources -- financial and human resources -- to develop pre-salt production, which is Petrobras’s main challenge in the coming years,” Bruno Piagentini Caloni, an analyst at brokerage Coinvalores, said by telephone from Sao Paulo. The company may be focusing more on Brazilian sales right now because “the outlook abroad is more complicated at the moment,” he said.

Worst Performance

Petrobras is spending $236.5 billion as part of its five- year investment plan, which includes developing the so-called pre-salt region. The company has faced delays in carrying out exploration in the region and getting the rigs it needs to tap oil trapped under as much as 3,000 meters (9,800 feet) of salt and rocks below the Atlantic seabed.

The producer has lost 20 percent for investors this year in U.S. dollar terms, giving it the worst performance of oil companies with a market value of more than $50 billion. The stock fell 1.3 percent to 18.70 reais in Sao Paulo trading.

The sale program includes assets from various business units in Brazil and abroad, and it will mainly be completed before the end of 2013, Petrobras said in an e-mailed reply to questions. It has gained 5.8 billion reais ($2.78 billion) by freeing resources under guarantee at the Petrobras workers pension fund and 1.7 billion reais in debt from the electricity sector.

“The issue of divestment includes two principal elements: divestment in itself and the use of working capital,” Chief Financial Officer Almir Barbassa said in an e-mailed reply to questions.

‘Marginal Fields’

It makes sense for Petrobras to sell some of its oil fields on land to shift money and staff to fields off the coast where production levels are higher, said Wagner Freire, an independent energy consultant and former exploration and production manager at Petrobras.

“They lose a lot of time with marginal fields on shore,” Freire said in a telephone interview from Rio.

Ninety percent of Brazil’s oil and 76 percent of its natural gas were produced at offshore fields in September, according to the National Petroleum Agency, Brazil’s oil regulator. Fields operated by Petrobras pumped 94 percent of total output.

Petrobras is heading for its first yearly output drop since 2004 as fields in the Campos basin off the coast of Rio de Janeiro state decline faster than the company expected. The company posted an unexpected 1.35 billion-real loss in the second quarter, followed by a drop in profit in the third quarter that surprised analysts.

Government-Run

The oil producer has lost a record $8 billion at its refining unit this year as Brazilian President Dilma Rousseff’s battle with inflation means the state-run company must sell imported gasoline below cost.

“You have a company that’s run for the government and not for shareholders,” Johan Van Geeteruyen, who helps manage about 13 billion euros ($17 billion) at Petercam SA in Brussels, said in a telephone interview. “They’ve over-promised and under- delivered, that’s the main issue.”

Petercam sold its Petrobras shares more than a year ago, he said. The company needs to improve output and profitability before the fund considers buying the stock again, said Van Geeteruyen.

Until the discovery of pre-salt oil, Petrobras was expanding in foreign countries to produce and refine enough crude to compete on a global scale, said Michael Wang, an analyst at IHS Herold in Norwalk, Connecticut. Petrobras shifted its focus to domestic output after discovering the offshore Tupi field in 2007.

Barbassa said in October that talks are also being held to sell “some” African assets, either fully or to form joint ventures.

“Before, they aspired to be an integrated international oil company like Exxon Mobil, but now I think it’s more appropriate for them to be a domestic company,” Wang said in a telephone interview. “There’s a shift in strategy.”

To contact the reporter on this story: Peter Millard in Rio de Janeiro at pmillard1@bloomberg.net

To contact the editors responsible for this story: Jessica Brice at jbrice1@bloomberg.net; James Attwood at jattwood3@bloomberg.net


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