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Petrobras to Shed Assets Worth $2.1B

Zacks Equity Research

The board of directors of the Brazilian energy behemoth, Petroleo Brasileiro SA or Petrobras S.A. (PBR), has sanctioned the sale of its $2.1 billion petrochemical, oil properties. Moreover, the company is planning to wrap up its property sale by the second half of this year, in order to support its $9.9 billion asset divestment program.

As per the authorization, Petrobras will hand over its entire ownership (35%) in block BC-10 to Sinochem Group – a conglomerate in China – for a total consideration of roughly $1.54 billion. Europe’s largest oil company, Royal Dutch Shell plc (RDS.A) and India’s state-owned company, Oil & Natural Gas Corp. (“ONGC”), hold 50% and 15% stakes in the block, respectively.  

Included in the sanction, Petrobras will divest all of its interests in Petroquimica Innova, for a consideration of $372 million to Videolar SA. Innova is a petrochemical firm that engages in the manufacture of styrene, ethylbenzene and polystyrene, which are utilized to produce household appliances and other products.

Moreover, as part of the permission given by the board, Petrobras will sell its 33%, 100% and 60% ownerships in MC 613, GB 244 and EW910 blocks, respectively, for about $185 million. All the blocks are based in the U.S. Gulf of Mexico.

The remaining stakes in the EW910 property is owned by W&T Offshore Inc. (WTI), an independent energy firm. Moreover, the remaining 67% interest in the MC 613 asset is held by Royal Dutch Shell. The buyers of the properties have not been declared yet.

Management declared that the sales are subject to the approval of the regulators.

Headquartered in Rio de Janeiro, Petrobras’ activities include: exploration, exploitation and production of oil from reservoir wells, shale and other rocks, and refining, processing, trade and transport of oil and oil products, natural gas and other fluid hydrocarbons, in addition to other energy-related activities.

The Brazilian government, the company’s majority shareholder, has a history of political interference in Petrobras’ affairs. We do not expect this situation to change in the short- to medium-term. This may impact the company’s performance, since the interest of the government might not coincide with that of the minority shareholders.

Petrobras currently retains a Zacks Rank #5 (Strong Sell), implying that it is expected to significantly underperform the broader U.S. equity market over the next 1 to 3 months.

Meanwhile one can look at energy firm Dril-Quip Inc. (DRQ) that offers value. The stock currently sports a Zacks Rank #1 (Strong Buy).

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