Brazilian state-run energy giant Petroleo Brasileiro S.A., or Petrobras (PBR) sold its 40% interest in BS-4 oil block in the Santos Basin. The stake was sold to OGX Petróleo e Gás Participações SA – the country’s second largest oil company by market value – for $270 million.
The sold block consists of two fields, Atlanta and Oliva, located 115 miles offshore Brazil at a water depth of about 1500 meters.
The deal is subject to sanction by Brazil's National Petroleum Agency (ANP). Other operators of the block include Queiroz Galvão Exploração e Produção S.A. and Barra Energia do Brasil Petróleo e Gás Ltda. with 30% stake each. The deal will not affect their holdings.
Headquartered in Rio de Janeiro, Petrobras is the largest integrated energy firm in Brazil and one of the largest in Latin America. The company operates in six segments: ‘Exploration and Production’, ‘Refining, Transportation and Marketing’, ‘Distribution’, ‘Gas and Power’, ‘Biofuels’ and ‘International’.
Petrobras has embarked on an ambitious investment program for the 2012-2016 period, totaling a massive $236.5 billion. This is expected to substantially increase the company’s leverage and deteriorate its credit metrics during the current downturn in the economic cycle. Additionally, the increasing capital intensity of its operations may result in reduced returns going forward. The asset sale is Petrobras’ first move under its five year investment plan.
Petrobras’ results are heavily levered to changes in the overall energy price environment, which are inherently volatile and subject to complex market forces. Brazilian politics and economics and changes to the country’s energy legislation may have an impact on Petrobras.
Petrobras – one of the biggest energy companies along with ExxonMobil Corp. (XOM), Royal Dutch Shell plc (RDS.A) and Chevron Corporation (CVX) – currently retains a Zacks #3 Rank, which translates into a short-term Hold rating.
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