Petrobras Swap Favors BG Over Repsol, Citigroup Says

Petroleo Brasileiro SA’s planned $42.5 billion share swap with the Brazilian government makes BG Group Plc’s assets in the South American country more attractive than Repsol YPF SA’s, Citigroup Inc. said in a report.

BG is “more sensitive to any positives in the Petrobras valuation” because Repsol’s assets may have to be revalued before a planned initial public offering of its Brazilian unit, Mark Fletcher, an analyst at Citigroup in London, said in a report dated today. BG is trading at a 35 percent fair value while Repsol is “10 percent rich,” Fletcher said.

Partners Repsol of Spain, the U.K.’s BG and Petrobras, Latin America’s largest company by market value, have discovered hydrocarbons in three Brazilian offshore fields over the past three years. The fields are located near Petrobras’s Tupi field, whose estimated 8 billion barrels of reserves are the biggest find in the Americas since Mexico’s Cantarell field in 1976.

Petrobras plans to sell as much as $75 billion of new shares, the Rio de Janeiro-based company said today in a regulatory filing. The state-controlled company agreed Sept. 1 to buy $42.5 billion in new stock from Brazil’s government for the right to develop 5 billion barrels of offshore oil reserves.

The three companies have two partnerships in Brazil, according to BG’s website. Petrobras has a 45 percent stake, BG 30 percent and Repsol 25 percent in the Carioca, Guará, Abaré West and Iguaçu fields. Petrobras owns 60 percent, while Repsol and BG each own 20 percent of the BM-S-50 block.

Asset Valuations

Citigroup values BG’s Brazilian assets at $4.50 per barrel and Repsol’s at $5.50 per barrel, Fletcher’s report said. Petrobras will pay $8.51 per barrel, on average, for the reserves under terms of the accord with the government.

The value paid by Petrobras doesn’t directly compare with the estimated value for Repsol and BG, Fletcher said in the report. The value for Petrobras’s assets is boosted by a range of $1.50 a barrel to $2 from the normal concession because “the fiscal regime is likely more benign for Petrobras,” he said.

Repsol, Spain’s biggest oil company, filed to sell shares in Brazil on Aug. 9. The company plans to sell about 40 percent of its local unit as it seeks to raise about $4 billion to fund production of offshore oil projects. The Madrid-based company is targeting the sale to occur before year-end, Chief Operating Officer Miguel Martinez said in July.

BG Group, based in Reading, England, is the U.K.’s third-largest oil and natural-gas producer. BG is focusing on projects in Brazil, the U.S. and Australia and in May agreed to join an exploration project in Tanzania.

BG rose 8.5 pence to close at 1,092.5 pence at 4:35 p.m. in London trading, the highest price since Aug. 23. Repsol fell 0.09 cents to close at 18.81 euros in Madrid.

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