Petroleo Brasileiro SA (PETR4)’s oil finds are attracting private-equity investments to the country’s energy industry after the Brazilian state-run company struck its thickest layer of crude ever in an offshore field.
First Reserve Corp. and Riverstone Holdings LLC last year invested $1 billion to help Barra Energia Petroleo & Gas buy a stake in the Carcara area from Royal Dutch Shell Plc. Petrobras, which operates the block, said Aug. 13 it found good-quality oil at Carcara that’s thicker than the layer at Lula, Brazil’s largest field with an estimated 6.5 billion barrels of reserves.
Petrobras got the attention of investors with a plan to spend $236.5 billion on developing the world’s biggest crude discoveries in more than a decade. Banco Santander SA started Brazil’s first oil-industry private equity fund in 2010 as analysts forecast the industry will attract as much as 600 billion reais ($296 billion) in five years. Funds including Singapore’s Temasek Holding Pte. and JPMorgan Chase & Co.’s Gavea Investimentos Ltda. have bought stakes in equipment suppliers set to benefit from Petrobras drilling.
“Without a doubt there is more space for investments in oil and gas,” Clovis Meurer, chief executive officer of venture capitalist CRP Companhia de Participacoes and head of the Brazilian Private Equity & Venture Capital Association, said in a telephone interview from Porto Alegre, Brazil. “Investment volumes are going to increase.”
Petrobras rose 0.3 percent to 21.30 reais at 3:08 p.m. in Sao Paulo. The stock is down 0.7 percent this year, compared with a 2.5 percent gain in the benchmark stock index.
Private equity and venture capital funds dedicated to Brazil raised $8.1 billion last year, up from $6.2 billion in 2010, according to the Latin American Venture Capital Association, or Lavca. Gavea, Vinci Partners, BTG Pactual and Patria Investimentos raised $7.3 billion of that last year, Lavca said on its website.
Santander started its Brazil oil fund in a partnership with Rio de Janeiro-based asset management firm Mare to raise $1.4 billion for investments in startups supplying Petrobras. Mare is controlled by former Vale SA director Demian Fiocca and Rodolfo Landim, an ex-Petrobras director who helped billionaire Eike Batista set up oil producer OGX Petroleo & Gas Participacoes SA.
Banco Bradesco SA, the country’s largest bank by market value after Itau Unibanco Holding SA, also started a fund to raise 2 billion reais last year. Valora Gestao de Investimentos, a Sao Paulo-based private equity firm, raised 500 million reais this year to invest in providers of offshore drilling equipment.
Barra bought 10 percent of the BM-S-8 block where Carcara is located from Shell in July 2011. The Rio de Janeiro-based startup also acquired part of the Atlanta and Olivia oil fields in the Campos Basin from Chevron Corp.
Drilling at Carcara’s first well found a layer of oil that’s more than 400 meters (1,300 feet) thick, compared with as much as 350 meters at Lula, Jose Formigli, the head of Petrobras’s exploration and production unit, told reporters Aug. 15. That would make it the thickest layer of oil ever discovered in Brazil’s so-called pre-salt region, according to finds announced by Petrobras on its website. Formigli said the company is still assessing how wide the reservoir is.
The initial data indicates Carcara may be one of the largest fields discovered in Brazil, Cleveland Jones, an oil specialist and geology professor at Rio de Janeiro State University, said in a telephone interview. Jones estimates the entire area holds “in excess” of 100 billion barrels, compared with government estimates of at least 50 billion barrels.
First Reserve and Riverstone “were in the right place at the right time,” said Beth Ramos, a partner for the oil and gas division of consulting firm Ernst & Young LLP in Rio. “Petroleum is risky economically, but petroleum is petroleum -- if you have a find you’re easily going to recover” your investments.
“We are encouraged by management’s progress in building a diversified portfolio in the Santos Basin and with the results so far at Carcara,” Will Honeybourne, managing director of Greenwich, Connecticut-based First Reserve, said in an e-mailed response to questions about Barra. Jeff Taufield, a spokesman at New York-based Riverstone, declined to comment when reached by telephone.
Brazil hasn’t sold any exploration licenses since 2008, reducing opportunities for investing in oil startups and prompting private-equity firms instead to focus on services and equipment providers, said Sergio Brasil, a mergers and acquisitions lawyer at Mayer & Brown in Sao Paulo.
“I see more opportunities in the supply chain,” he said. “In exploration there are huge investments and most of them are foreign companies” that don’t need equity financing.
The oil boom led by Petrobras means Brazil’s offshore industry will require about $400 billion worth of goods and services in the 10 years through 2020, according to estimates by local oil-industry association ONIP.
One of the biggest risks facing private-equity firms investing in Brazil’s oil is increased government intervention, said Auro Rozenbaum, an analyst at Bradesco in Sao Paulo. In 2010, Brazil passed a law giving Petrobras operating control of all blocks in the pre-salt region. That means Barra and other minority shareholders have no control over how fast fields get developed, Rozenbaum said.
‘Depending on Petrobras’
“It all depends on Petrobras,” Rozenbaum said. “The time value of money is a question mark here.”
The access to funding that its partners and suppliers are getting in Brazil and abroad is “very positive” for the company, Petrobras said in an e-mailed response to questions, declining to comment further.
While Barra has sufficient funds to finance the development of the two concessions where it has minority stakes, the exploration company wouldn’t have any problems raising additional funds should it seek to expand further, Chief Executive Officer Renato Bertani said in an e-mailed response to questions.
“Should the Carcara discovery prove to be so large that additional capital will be required, we do not foresee many issues in raising funding for such development,” Bertani said.
To contact the reporter on this story: Peter Millard in Rio de Janeiro at firstname.lastname@example.org