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Petrobras Arm, BTG Pactual in JV

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Petrobras International Braspetro BV, a wholly-owned subsidiary of Brazil's state-run energy giant Petroleo Brasileiro S.A., or Petrobras (PBR - Free Report) has entered into a joint venture with Brazilian investment bank – Banco BTG Pactual SA. The parties have teamed up for upstream operations in Africa.  

Per the venture, BTG Pactual will buy 50% interests of the total oil and gas upstream assets based in Angola, Benin, Gabon, Namibia, Tanzania and Nigeria. The assets are fully owned by Petrobras International. The total cash consideration for the transaction is estimated at $1.5 billion. The deal, already approved by the Petrobras board of directors, is slated to be completed by June end.

Petrobras added that this deal, which is representing its divestment plan, is aimed at expanding its African upstream operations through investment sharing opportunities – a cost-effective way of developing properties.

BTG Pactual will benefit no less from this venture. The project will help in diversifying BTG Pactual’s client portfolio, by investing in the African oil and gas exploration and production assets.

Headquartered in Rio de Janeiro, Petrobras is the largest integrated energy firm in Brazil and one of the largest in Latin America. The company’s activities include exploration, exploitation and production of oil from reservoir wells, shale and other rocks. Petrobras is also engaged in refining, processing, trade and transport of oil and oil products, natural gas and other fluid hydrocarbons, in addition to other energy-related activities.

Petrobras produces substantially all of Brazil’s crude oil and natural gas and accounts for almost all of the country’s refining capacity.

However, the Brazilian government, the company’s majority shareholder, has a history of political interference in Petrobras’ affairs. We do not expect this situation to change in the short to medium term. This may impact the company’s performance, since interests of the government might not coincide with those of minority shareholders.

Petrobras currently retains a Zacks Rank #3 (Hold), implying that it is expected to perform in line with the broader U.S. equity market over the next 1 to 3 months.   

Meanwhile, one can look at Ferrellgas Partners LP (FGP - Free Report) , InterOil Corp and EQT Midstream Partners LP (EQM - Free Report) as good buying options. These energy stocks – sporting a Zacks Rank #1 (Strong Buy) – have solid secular growth stories with potential to rise significantly from the current levels.

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