Petrobras this month said it’s pursuing ventures with China Petroleum & Chemical Corp., or Sinopec, and GS Energy to build refineries to supply Brazil’s growing fuel demand. The Rio de Janeiro-based company also sold half of its African assets to Grupo BTG Pactual (BBTG11) SA for $1.5 billion.
The state-run producer is spending $237 billion in the five years through 2017. Investments are set to surge as it develops the ultra-deepwater Libra field, Brazil’s biggest discovery, and blocks it bought in a May licensing round. The company is looking to team up with foreigners after costs at similar projects it managed itself rose more than fourfold.
“They’re putting their house in order,” said Rogerio Freitas, who helps manage about $100 million including Petrobras shares at hedge fund Teorica Investimentos. “When things start to improve abroad there could be a strong movement” back into the stock.
Petrobras has plunged 15 percent so far in June, putting it on track for its biggest monthly decline since December 2008. The company trades at 6.92 times forecast earnings over the next year. The average ratio among 15 global peers tracked by Bloomberg is 11.
Last year, Petrobras announced a plan to cut costs by 32 billion reais ($14.2 billion) as expenses surged. The company is also selling and restructuring assets to raise $9.9 billion.
The company said June 19 it signed a letter of intent with Beijing-based Sinopec (386) for its Premium I refinery venture in Maranhao state, less than two weeks after it signed a similar accord with South Korea’s GS Energy for the Premium II refining project in Ceara state.
Petrobras declined to comment on its search for partnerships in an e-mailed response to questions.
The company is seeking refining knowledge abroad after costs for its Northeast project, set to be the first new refinery to open in Brazil since 1980, swelled to more than $12 billion from $2.8 billion and the start date was pushed back to 2014 from 2011. Brazil-based engineering and construction groups including Camargo Correa SA and Odebrecht SA hold contracts for that project. Sinopec and GS didn’t respond to e-mails requesting comment. Odebrecht and Camargo Correa declined to comment on their projects with Petrobras.
“They’re trying to lower refining investments,” Joao Pedro Brugger, who helps manage 330 million reais at Leme Investimentos, said by phone from Florianopolis, Brazil. “It’s about operational efficiency.”
Petrobras has reduced by half contracts with Odebrect’s engineering unit for projects outside of Brazil, Chief Executive Officer Maria das Gracas Foster said June 5, indicating the company is pressuring local suppliers to lower costs.
The oil producer has been careful to find partners with the financial muscle to complete the investments for the Premium I and II refineries, Gianna Bern, president of risk-management adviser Brookshire Advisory and Research, said by phone from Chicago. Originally, Petrobras planned to split costs for the Northeast refinery with Petroleos de Venezuela SA, or PDVSA. The press office for Venezuela’s state-owned oil producer didn’t respond to a phone call and an e-mail requesting comment.
“PDVSA never came up with the money and I don’t think they’ll have that problem with Sinopec,” Bern said. “Petrobras is working with partners who have the financial wherewithal to advance these infrastructure projects.”
Petrobras will need to guarantee projects turn a profit in order to secure foreign companies with the cash and experience to build refineries at a lower cost, said Oswaldo Telles, an analyst at Banco Espirito Santo SA. Petrobras’s refining division posted a record $9 billion in losses last year amid fuel-import subsidies and cost overruns.
“The company is considering implementing a special commercial arrangement to guarantee a stable economic return for the refineries and compensate for its gasoline and diesel policy,” Telles said by phone from Sao Paulo. “Otherwise Sinopec and GS Energy wouldn’t be interested.”
Sao Paulo-based BTG Pactual agreed to buy half of Petrobras’s assets in Angola, Benin, Gabon, Namibia, Nigeria and Tanzania, reducing Petrobras’s share of exploration and development costs. The deal was the largest to date from a divestment program that Petrobras first announced in 2011. The company also has sold exploration blocks in the Gulf of Mexico and Brazil as part of the asset sale and restructuring plan.
“It’s a question of cost sharing and risk sharing,” said Bern. “For integrated oil majors, partnerships have become the mantra of the industry.”