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Brazil Court Halts Petrobras' (PBR) $7-Billion Asset Sale

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Petroleo Brasileiro S.A. or Petrobras’ (PBR - Free Report) 2017-2018 divestment plans could be in jeopardy, as the Brazilian Federal court suspended the company’s $7-billion deal with Engie SA. The court recently passed a ruling against the sale of Petrobras’ natural gas pipeline unit, Transportadora Associada de Gás (TAG) to France-based Engie SA.

The company had announced the sale of its wholly-owned subsidiary, TAG, last year. TAG’s gas pipeline system spanning 4,500 kilometers is primarily located in the north and northeast of Brazil. It can transport up to 74.7 million cubic feet per day, which is fully contracted through long-term agreements with ship-or-pay clauses.

The court halted the transaction due to discrepancies in the way Petrobras advanced with the sale. It is believed that the sale was not publicized well enough to stimulate ample competition. Petrobras is taking necessary legal steps to protect the interest of its shareholders.

The sale of TAG is major part of Petrobras’ divestiture program of 2017-2018. The company plans to sell assets worth $21 billion over the said time frame. These divestment plans are in sync with the company’s strategy to reduce its debt burden, and reinstate its investment grade rating and financial health. Further, it will also help the company gain additional liquidity, as it intends to increase investment in the ultra-deepwater projects.

As it is, with the resignation of the company’s CEO, Pedro Parente, Petrobras has been thrown into disarray, with its shares falling sharply. The departure of Parente has raised speculations that the country may resort back to its old fuel pricing of subsidies that may again hamper the company’s growth and economy. Moreover, with this latest unpleasant news about the suspension of $7 billion divestment deal, Petrobras might have a tough time ahead.

Zacks Rank and Key Picks

Currently, Petrobras has a Zacks Rank #3 (Hold).

Some better-ranked stocks in the oil and energy sector are Cheniere Energy, Inc. (LNG - Free Report) , Occidental Petroleum Corporation (OXY - Free Report) and Oasis Petroleum Inc. (OAS - Free Report) , each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

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