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Brazil's Oil Juniors Hunt for Mergers After Shift at Petrobras
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(Bloomberg) -- Petrobras' shift away from oil-field divestment is
motivating a pivot by Brazil's junior drillers to corporate
acquisitions as the most-viable expansion strategy.
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The independent Brazilian crude producers that grew the most from
buying Petrobras' fields — PRIO SA, 3R Petroleum Oleo e Gas SA, Enauta
Participacoes SA and PetroReconcavo SA — are all either engaged in
merger negotiations or assessing potential acquisitions, according to
Brazilian oil executives and people familiar with the discussions.
One of the sellers is Oslo-listed Seacrest Petroleo Bermuda Ltd.,
which has onshore fields in southeastern Brazil and has hired Goldman
Sachs Group Inc. to help find a buyer, the people said. Seacrest wrote
in an email that it doesn't comment on market speculation. Goldman
declined to comment.
These junior oil explorers offer equity investors eager for exposure
to the Brazilian oil sector an alternative to state-run behemoth
Petrobras. Although the output from these relative newcomers pales in
comparison to supplies produced by the national oil company, any
additional barrels they pump aid Brazil in its goal of entering the
top five of global sources of crude and gas this decade.
Read More: Brazil Oil Juniors 3R, Enauta Rise After Advancing Merger
Talks
"The way for them to grow and expand operations is really through
M&A," Fabiana Gobbi, an associate director at S&P Global Ratings who
covers Brazilian oil producers, said in an interview.
The biggest example of the trend toward consolidation is the battle
for 3R, which operates on and offshore. PetroReconcavo was negotiating
a merger with 3R earlier this year before Enauta delivered a competing
bid that, so far, is prevailing.
Petroleo Brasileiro SA, as the Rio de Janeiro-based oil major is
known, began selling some mature, onshore fields and shallow-water
assets in the late 2010s after entering financial difficulties tied to
fuel subsidies and a wide-ranging graft scandal.
For Petrobras, it was a pronounced shift and gave foreign and domestic
drillers opportunities to buy wells already pumping oil and gas, as
opposed to high-risk exploration licenses.
After President Luiz Inacio Lula da Silva took office in 2023,
Petrobras abandoned its narrow focus on the biggest discoveries in
deep seas and made onshore and international operations a priority
again.
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"Today, we have assets that are very strategic for us, that have an
elevated level of production and good profitability," Ana Zettel, an
executive manager at Petrobras's upstream division, said during an
interview.
Still, Petrobras hasn't completely halted sales of lower-performing
fields and is continuously reviewing its portfolio, she said. In the
past six months, Petrobras divested two fields — one to Enauta and
another to Perenco SA.
Acquisition Targets
PRIO, an offshore producer focused on the Campos Basin, is interested
in buying a stake in the Peregrino offshore field that is operated by
Equinor ASA. There is an expectation that the Norwegian producer could
sell its Peregrino holding after it gets bigger projects up and
running in Brazil, the people said.
In an email, PRIO said it doesn't have any ongoing negotiations but
that it is always looking at ways to grow and doesn't rule out asset
purchases in Brazil or the US sector of the Gulf of Mexico. Equinor
said it doesn't comment on market speculation.
The Brazilian units of Karoon Energy Ltd. and BW Offshore Ltd. could
become acquisition targets because they each have offshore fields in
the Campos Basin without much potential to expand, Gobbi said. Karoon
declined to comment and BW didn't respond to an inquiry.
PetroReconcavo, which produces the equivalent of roughly 26,000
barrels a day, is evaluating smaller drillers, the people said.
PetroReconcavo could try and merge with the company created by 3R and
Enauta, if that deal goes through, or hunt for other options, the
people said.
PetroReconcavo said it was in a quiet period in response to questions.
It denied a local media report that is was negotiating a merger with
Eneva SA, a natural gas producer, according to an Apr. 24 filing.
Meanwhile, Seacrest has two clusters of onshore fields in Espirito
Santo state and a storage terminal operated by Petrobras' Transpetro
unit. Seacrest's 31 fields currently produce about 8,000 barrels a
day.
"Expect this horse-trading and consolidation of positions to continue
as companies begin to size up in earnest the true potential of their
new holdings," said Schreiner Parker, managing director for Latin
America at Rystad Energy AS.
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