Petrobras Group Wins Brazil’s Biggest Prospect; Shares Surge
A group led by Petroleo Brasileiro SA (PETR4), the state-run oil company known as Petrobras, won a license to develop Brazil’s biggest oil discovery under terms that exceeded analysts’ estimates. Petrobras shares surged.
Petrobras and partners Royal Dutch Shell Plc (RDSA), Total SA (FP), Cnooc Ltd. (883) and China National Petroleum Corp., pledged to the government the minimum 41.65 percent of profit oil, or the barrels remaining after all costs are covered, to win the 35-year project in deep waters of the Atlantic Ocean. Bank of America Corp. said in an Oct. 14 report that profit oil of less than 50 percent would be seen as beneficial for Petrobras. The companies will pay a 15 billion-real ($6.9 billion) signing fee.
Libra is the first auction of subsea prospects known as pre-salt using a production-sharing model that makes Petrobras the operator of all new projects and requires it to own at least a 30 percent stake. Brazil increased its control of the oil industry under former President Luiz Inacio Lula da Silva after it announced in 2007 the discovery of at least 50 billion barrels trapped under a layer of salt two miles below the seabed.
“Given already negative sentiment toward the stock, we would expect a positive reaction for Petrobras’s stock as long as profit oil levels offered are not viewed as excessive and its stake does not go above 40 percent,” Bank of America analysts Frank McGann and Vicente Falanga Neto said in the report.
Petrobras, which will take a 40 percent stake in the concession, rose 4.3 percent 18.70 reais at 3:53 p.m. in Sao Paulo.
Petrobras, the biggest producer in waters deeper than 1,000 feet, plans to double crude output by 2020 with most of the gains coming from the pre-salt that contains the biggest discoveries this century. Libra will require an investment of 400 billion reais over the 35-year concession, which will include 12 to 15 offshore platforms that will pump more than 1 million barrels a day when fully ramped up, according to the oil regulator.
The legislation calls for a new state company, Pre-Sal Petroleo SA, or PPSA, to represent the government with the power to veto decisions at pre-salt projects, including Libra.
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