Petrobras $237 Billion Investment Pressured by Sales Lag: Energy

Petroleo Brasileiro SA, the biggest oil producer in deep waters, is raising less than forecast through asset sales as it seeks cash for a $237 billion investment plan aimed at refocusing on exploration at home.

The disappointing results reflect a glut of available properties in the Gulf of Mexico, where competitors are also trying to unload deep-water blocks, and the fact that the potential value of the company’s Brazilian holdings are being devalued by that government’s decision to hold its first oil auction since 2008 later this year.

Petrobras, as the company is known, said March 15 it scaled back a target for asset sales. The company now aims to sell and restructure assets to raise $9.9 billion, almost $1 billion less than its previous five-year investment plan, and instead will rely more on cost controls as it doubles output by 2020. Failing to sell assets would require the state-controlled company to sell more bonds, according to Fitch Ratings.

“They’ve been struggling to sell assets in the Gulf of Mexico and Argentina,” Bernardo Wjuniski, an analyst at Medley Global Advisers in Sao Paulo, said by phone. “It doesn’t seem this can be done as quickly as they want.”

In the Gulf of Mexico, for example, where Petrobras began production this year, the company is competing with Houston-based Apache Corp. and ATP Oil & Gas Corp., which are also trying to shed assets. Meanwhile, plans to sell some of its smaller properties in Brazil are being slowed as potential buyers await the government’s first oil auction since 2008.

‘Insignificant’ Value

“There’s a lot of supply in the market today,” Lincoln Guardado, chief executive officer of Rio de Janeiro-based oil startup QGEP Participacoes SA, said on a March 14 conference call. “We have farm outs and an auction.”

Where Petrobras has been successful, the results have been meager. Petrobras said in an e-mail this week that it sold a stake in Benin’s Block 4 in West Africa to Royal Dutch Shell Plc and its Flavian prospect in the U.S. Gulf of Mexico to Plains Exploration & Production Co. Although financial terms weren’t disclosed, Petrobras said both sales were “insignificant” in value.

Petrobras previously announced sales of a stake in an offshore field and a plant in Argentina, valued at about $305 million.

New Debt

“Petrobras is a company that grew through acquisitions,” Chief Executive Officer Maria das Graca Foster told analysts yesterday on a conference call to discuss the investment plan. “It is Petrobras’s first experience in divestments.”

The company plans to sell most of the $9.9 billion this year and included new projects in the list of assets for sale, she said.

Petrobras, rated BBB by Standard & Poor’s and Fitch Ratings Ltd., will have to rely more heavily on international debt markets to meet its investment plan if it fails to sell assets, Ana Paula Ares, an analyst at Fitch Ratings, said by phone from Buenos Aires.

The most indebted publicly traded oil company plans to borrow $61 billion in the five years through 2017 to make $237 billion in investments to double domestic oil output to 4.2 million barrels a day and build new refineries.

Petrobras has lost investors 27 percent in the past 12 months in U.S.-dollar terms, the worst performance among oil companies with a market value of at least $50 billion, according to data compiled by Bloomberg. The Brazilian producer has the fourth-lowest ratio of price to estimated earnings of the 18 companies, behind Russia’s OAO Gazprom, OAO Lukoil and OAO Rosneft. Petrobras shares fell 1.6 percent to 18.79 reais at 4:03 p.m. in Sao Paulo.

Pre-Salt Auctions

Brazil plans to hold three oil and gas block auctions this year, including exploration areas in the so-called pre-salt region that holds the country’s biggest discoveries. Oil producers including Royal Dutch Shell Plc, based in The Hague, Norway’s Statoil ASA and France’s Total SA are preparing to compete in the country’s first bid round since 2008, scheduled for May 14 and May 15.

Large and medium-sized exploration companies from the U.S. and Europe with decades of experience are more interested in acquiring acreage in licensing rounds than blocks that hold discovered deposits, said Michael Wang, an analyst at IHS Herold in Norwalk, Connecticut.

The main potential buyers for Petrobras’s Brazil assets are Asian national companies more interested in securing discovered resources than exploring uncharted areas, he said.

“You have a narrow set of buyers and not much interest from Western majors,” Wang said in a phone interview.

Petrobras also has to compete with more sellers in the U.S. where it failed to sell a group of assets to a single buyer, Wang said.

Argentine Assets

Apache is weighing a sale of deep-water assets in the U.S. Gulf of Mexico that may be worth as much as $3 billion, a person familiar with the matter said March 7. ATP, the gulf producer that filed for bankruptcy protection in August, plans to sell stakes in 23 deep-water blocks where the value of underlying resources may exceed $6 billion.

Petrobras is in talks over the sale of Argentine assets as part of its divestment plan, Foster said yesterday, without providing further details. Petrobras’s refinery in Pasadena, California, was removed from the divestiture portfolio and instead ways to make it more efficient are being studied internally, she said.

Uncertain Timing

Petrobras controls Petrobras Argentina SA, which produces and refines crude in Argentina.

Petrobras has 186 exploration blocks in the Gulf of Mexico region and began production this year. The assets are worth as much as $8 billion, Foster said Dec. 4.

“There are definitely more assets in the market right now,” Wang said. “It might be difficult to find one buyer for all its assets, but it might be easier to sell individual assets.”

Last year Petrobras raised about $4 billion of the $14.8 billion in asset sales and restructuring it targeted in its previous business plan, Foster said yesterday. It raised the bulk of the funds by freeing up guaranteed resources at a pension fund for company workers and recovering debt to the electricity industry.

“We are not incorporating those asset divestitures as an additional source of funding,” Fitch’s Ares said. “We know that the company is in the process of divesting some assets, but there is uncertainty over the timing.”

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