Statoil Buys Petrobras Oilfield for $2.5 Billion Amid Crash

  • Biggest acquisition since 2011 at ‘competitive’ terms: Statoil
  • Deal provides cash for scandal-hit Brazilian producer

Statoil ASA, Norway’s biggest oil company, will buy an offshore oil block in Brazil from Petroleo Brasileiro SA for $2.5 billion, seizing on lower asset valuations amid a price slump to make its biggest acquisition since 2011.

Statoil will buy Petrobras’s operating interest of 66 percent in the BM-S-8 offshore license in the Santos basin, which it estimates to hold between 700 million and 1.3 billion barrels equivalent of recoverable oil, according to a statement from the Norwegian driller. The block contains a substantial part of the Carcara oil discovery and has significant potential for additional volumes, the company’s head of exploration said in an interview.

“It’s a world class asset,” Executive Vice President Tim Dodson said by phone. “We’re acquiring this on very competitive terms.”

The acquisition strengthens Statoil’s presence in Brazil, where it already operates 100,000 barrels of daily production, a stake in another billion-barrel discovery and exploration blocks, setting up the Latin American country as one of the most important contributors to the Norwegian company’s output in the next decade. The deal, which affirms Statoil’s intention to keep expanding internationally despite the market turmoil, is the company’s biggest acquisition since buying Brigham Exploration Co. for $4.4 billion in 2011 to access U.S. shale oil resources.

Needed Cash

For state-run Petrobras, the energy giant at the center of Brazil’s biggest political scandal, the sale will provide much-needed cash after it slashed planned investments by half last year to navigate lower oil prices and free up funds for paying off debt. The company is also defending itself against a class-action lawsuit in the U.S. stemming from a vast pay-to-play scandal, where company executives took bribes from a group of contractors.

The transaction “is significant for the industry as it represents the first example of Petrobras giving up operatorship of Brazil’s pre-salt Santos basin assets,” Jefferies Group LLC said in a note to clients. The pres-salt if Brazil’s most promising offshore region.

Statoil expects a final investment decision to be made for the development of the Carcara field and possible other resources after 2020, with production to start in the mid-2020s, Dodson said. The Carcara field stretches into virgin acreage to the north of the BM-S-8 block, which is expected to be offered to explorers in a licensing round next year, according to Statoil.

Staged Payment

Within the BM-S-8 block, there’s “high-impact upside,” Dodson said, referring to the potential to discover at least 250 million more barrels. The company hopes to drill a well there next year, in addition to as many as three other exploration wells in the Espirito Santo basin off Brazil.

Statoil will pay half of the acquisition price when the transaction closes late this year or early in 2017 and the rest when certain milestones are met, Dodson said. Given the staged payment, the net present value after tax is actually about $2 billion, meaning Statoil acquires these resources at $2 to $3 a barrel, which compares to the company’s goal of finding barrels through exploration at a cost of $4 a barrel, he said.

The deal is neutral at an oil price of $60 a barrel, Helge Andre Martinsen, an analyst at DNB ASA, said in a note to clients. It has positive impact of 2.9 kroner per Statoil share at long-term oil prices of $70 a barrel, but a negative impact of 2.4 kroner at $50, he said.

“We consider it positive that Statoil is acquiring resources at the trough of the cycle,” said Martinsen, who advises his clients to buy the stock.

Not Expensive

Statoil fell 0.7 percent to 134.5 kroner a share as of 12:13 p.m. in Oslo trading, while Brent crude declined 1.2 percent to $42.17 a barrel.

“This transaction does not strike us as especially expensive,” Jefferies said. Still, “it further strains what we would deem one of the tightest cash cycles in the peer group.”

The first payment to Petrobras will add 1.5 percentage points to Statoil’s net-debt-to-capital-employed ratio, which rose to 31.2 percent at the end of the second quarter, Dodson said. He added it shouldn’t have any impact on Statoil’s current investment plans, which have seen the company cut capital expenditure to $12 billion this year from a $20 billion peak in 2014 as it seeks to protect cash flow amid lower prices and preserve dividends.

Petrobras shares have almost tripled since late January as oil prices have rebounded and it has announced a series of asset sales to free up cash to pay off debt. The company last month was said to be close to selling an 81 percent stake in a natural gas pipeline network in Brazil for nearly $6 billion to a consortium led by Brookfield Asset Management Inc.

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