Petroleo Brasileiro S.A. or Petrobras (PBR) recently entered into a Farm-Out Agreement with Shell Deepwater Tanzania BV – an affiliate of Royal Dutch Shell plc (RDS.A). Per the deal, Petrobras has granted 50% of its interest in offshore Blocks 5 and 6 in Tanzania to Shell. However, the financial terms of the deal were not disclosed.
Located offshore Tanzania, in the Indian Ocean, the depths of the wells range from 600 to 3,000 meters.
The Brazilian state-controlled company’s local unit, Petrobras Tanzania, which held 100% interest in each of the blocks prior to the transaction, will continue to act as the operator of the field. The country’s oil company, TPDC Tanzanian Petroleum Development Corporation, is the concessionaire of both the blocks.
Petrobras ventured into the Tanzania oil sector with the signing of the agreement for Block 5 with TPDC in 2004. Two years later, Petrobras inked the deal for Block 6.
Currently, the Zeta-1 well is being drilled in Block 5, which is expected to be completed by the end of the year, while 3D seismics interpretation work is currently being carried out for Block 6.
Headquartered in Rio de Janeiro, Petrobras primarily engages in exploration, exploitation and production of oil from reservoir wells, shale and other rocks, in refining, processing, trade and transport of oil and oil products, natural gas and other fluid hydrocarbons as well as in other energy-related activities.
We continue to have a very positive medium- to long-term outlook on Petrobras based on its encouraging portfolio of investments, both domestically and abroad. The company has been able to successfully leverage its Brazilian deepwater expertise into exploring upstream opportunities overseas.
However, Petrobras’ huge investment requirements, operational risks typical to an exploration and production company and tough competition from peers keep our optimism clouded. Unpredictable energy prices and government regulations also add to the negative sentiment.
Hence, we are maintaining our long-term Neutral recommendation on the stock. Petrobras currently retains a Zacks #3 Rank (short-term Hold rating).
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