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Petrobras' $2.2B Asset Sale to TOTAL Shelved on Court Order

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A cloud of uncertainty looms over Brazilian energy giant Petroleo Brasileiro S.A. or Petrobras’ (PBR - Free Report) divestment agreement with France-based TOTAL S.A. (TOT - Free Report) . The Brazilian federal court has put a partial hold on the $2.2-billion deal signed in March.

Per the deal, Petrobras was to sell some of its upstream and downstream assets to TOTAL. On the upstream front, TOTAL was to purchase stakes in the Lapa and Lara offshore prospects in the Santos Basin. The company was to acquire a 35% interest in the Lapa field and a 22.5% stake in Lara field. On the downstream end, TOTAL was to acquire a 50% interest in two thermal co-generation plants in the Bahia area and a re-gasification unit in the LNG terminal.

However, a federal court in Brazil has blocked the sale of Petrobras’ stakes in the Lapa and Lara oilfields. The judge granted a ruling in favor of members of a local oil workers union who raised anti-competitive concerns pertaining to the sale. The members of the union were of the opinion that the company should have opted for a public tender instead of a private negotiation.

Petrobras announced that it has not received any notice regarding the same. The company declared that it will take necessary legal steps to protect the interest of shareholders only after receiving an official statement from the court. 

Notably, this is not the first time Petrobras’ divestment deals have been stalled. In February, the court suspended the company’s $5.2-million deal for sale of its natural gas pipeline unit to Canada’s Brookfield Asset Management Inc. In April, the court halted the sale of Petrobras’ stake in an oilfield to Statoil ASA (STO - Free Report) . These divestment deals came under scrutiny because of the reported discrepancies in transactions and their failure to comply with regulations. The court believed that the company should have been more transparent in its dealings. However, later, the suspension orders were lifted and the assets were sold under the new rules revised by Brazil’s federal accounting court.

The assets sale is part of Petrobras’ 2015-2018 divestiture program. The company already sold more than $13.6 billion assets by 2016 and intends to raise another $21.4 billion over the next two years. The move is in line with the company’s aim to generate $35 billion from asset sales. These divestment plans are in sync with the company’s strategy to reinstate investors’ faith in the stock.

Petrobras is presently trying to come out clean of the money-laundering scandal that has led to a huge debt and scarred its credit metrics. The company is also focusing on entering into various strategic partnerships with foreign oil giants to drive exploration momentum. In this regard, the company has inked deal with major players like TOTAL, Royal Dutch Shell plc (RDS.A - Free Report) and Statoil.

Headquartered in Rio de Janeiro, Petrobras is the largest Latin American oil and gas integrated company. It is involved in the exploration, production, refining, retailing and transportation of petroleum and its byproducts, both domestically and internationally. The company currently carries a Zacks Rank #4 (Sell).

You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.

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