3R Petroleum signs gas supply deal with Bahia state distributor in Brazil

Independent oil and natural gas producer 3R Petroleum signed a two-year supply contract with Bahia state natural gas distributor Companhia de Gas da Bahia, or Bahiagas, as the company expands gas sales amid more-liberal market rules under the New Gas Market regulatory regime, 3R Petroleum said May 27.

3R Petroleum will initially supply 95,000 cu m/d from the Polo Reconcavo and Polo Rio Ventura groups of onshore fields in Bahia state, with supply commitments rising incrementally to 205,000 cu m/d by December 2022, the company said. The contract will run until December 2023.

The deal includes a fixed payment of $4.50/MMBtu as well as a variable payment indexed to Brent prices of up to $2.50/MMBtu, 3R Petroleum said. The final sales price under terms of the deal would be $6-$7/MMBtu at a Brent price of $75-$125/b, according to the company.

The supply contract "increases the visibility of revenues originating from natural gas production in the portfolio," 3R Petroleum said.

The deal was the latest in a series of supply contracts signed by gas distributors across Brazil's 26 states and the federal district of Brasilia under the New Gas Market regulatory regime implemented in 2021. The new rules ended state-led producer Petrobras' monopoly and opened the country's gas industry to greater competition, including allowing producers to sell gas output directly to consumers.

Under the previous regulatory regime, gas producers were prohibited from selling output directly to consumers and were forced to sell to Petrobras. Petrobras then acted as the sole supplier of gas in Brazil's market.

In addition, Petrobras was also forced to sell stakes it held in Brazil's natural gas pipeline transport networks and state gas distribution companies. Petrobras also ceded capacity on pipeline networks and allowed access to gas-processing plants.

Private-equity backed 3R Petroleum, meanwhile, has been a key player during an important transition in Brazilian energy markets. The company has been extremely active in mergers and acquisitions, snapping up many groups of mature onshore and offshore production fields sold by Petrobras during a divestment program that started in 2017.

Petrobras is exiting onshore and shallow-water production to focus on development of larger fields in the subsalt region.

The purchases have transformed 3R Petroleum's production portfolio, with expectations for additional output growth as more deals close throughout 2022 and the company starts revitalization work and drilling campaigns.

3R Petroleum completed its $250 million purchase of the Polo Reconcavo group of fields from Petrobras on May 10. That was expected to be followed by final approval of the $35 million purchase of the Polo Fazenda Belem and the $37.5 million deal for the offshore Polo Peroa in the next three months.

In the second half of 2022, 3R Petroleum also expects to close the $1.5 billion deal for the Polo Pescada-Arabiana and the $73.9 million purchase of the offshore Papa-Terra field.

The transactions were expected to push 3R Petroleum's output to about 45,000 b/d by the end of 2022. 3R Petroleum expects additional pending purchases and revitalization work to boost output to 70,000 b/d by 2028.