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Petrobras Inks Oil-for-Shares Deal
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Brazil's state-run oil company, Petrobras (PBR - Analyst Report) and the Brazilian government agreed to an oil-for-shares swap deal. As per the deal, Petrobras agreed to pay the Government $42.5 billion in new stock for the right to develop 5 billion barrels of offshore oil reserves.
Management said that the company’s proved reserves base will be increased by nearly 35% from the current level of approximately 14 billion barrels of oil equivalent. The transaction has set the stage for Petrobras’ multi-billion dollar public issue scheduled later this month.
The value of the oil rights may clear some of the uncertainties surrounding the company's public offer. Notably, shareholders of the company had approved the sale of up to $85 billion in new shares earlier this year.
Petrobras will require huge capital expenditure to develop the deep pre-salt layers as part of the company’s strategic initiative to ramp up production to 3.9 million barrels of oil equivalent per day (MMBOE/d) in 2014 and 5.4 MMBOE/d in 2020.
We continue to have a positive medium-to long-term outlook on Petrobras due to its encouraging portfolio of investments, particularly in Brazil’s pre-salt reservoirs that lie below the Espírito Santo, Campos and Santos basins in deep and ultra-deep water. The company is the operator in most of these exploration areas and holds interests ranging from 20% to 100% in them.
While Petrobras ADRs increased 2.6% yesterday to $35.99 with this oil-for-shares deal, we remain concerned about the significant rise in its downstream investment level in the face of a bearish refining margin outlook. Our Neutral recommendation remains unchanged with the Zacks #3 Rank (Hold).
Management said that the company’s proved reserves base will be increased by nearly 35% from the current level of approximately 14 billion barrels of oil equivalent. The transaction has set the stage for Petrobras’ multi-billion dollar public issue scheduled later this month.
The value of the oil rights may clear some of the uncertainties surrounding the company's public offer. Notably, shareholders of the company had approved the sale of up to $85 billion in new shares earlier this year.
Petrobras will require huge capital expenditure to develop the deep pre-salt layers as part of the company’s strategic initiative to ramp up production to 3.9 million barrels of oil equivalent per day (MMBOE/d) in 2014 and 5.4 MMBOE/d in 2020.
We continue to have a positive medium-to long-term outlook on Petrobras due to its encouraging portfolio of investments, particularly in Brazil’s pre-salt reservoirs that lie below the Espírito Santo, Campos and Santos basins in deep and ultra-deep water. The company is the operator in most of these exploration areas and holds interests ranging from 20% to 100% in them.
While Petrobras ADRs increased 2.6% yesterday to $35.99 with this oil-for-shares deal, we remain concerned about the significant rise in its downstream investment level in the face of a bearish refining margin outlook. Our Neutral recommendation remains unchanged with the Zacks #3 Rank (Hold).
Read the full analyst report on PBR
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