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Brazil court ruling fundamental to divestment plan: Petrobras

Highlights

Brazilian state-led oil company Petrobras said a ruling Wednesday by the country's Federal Audit Court, or TCU, would allow the company to move forward with plans to sell $21 billion worth of assets over the next two years.

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In a filing with local stock regulators made late Wednesday, Petrobras said the decision was "fundamental for the company to move forward with its Partnerships and Divestment Plan, which is considered the primary pillar to reaching the debt-reduction target."

In its ruling, the TCU allowed Petrobras to complete two asset sales in advanced stages of completion but ordered Petrobras to restart the sales process for the remainder of its divestment projects.

While the TCU's ruling eliminates many of the legal hurdles Petrobras has faced in its effort to raise cash needed for investments and to pay down debt, the new transparency rules likely mean significant delays to divestments as complicated processes to sell oil fields, refineries, service stations and oil terminals now need to be restarted.



Petrobras had hoped the reboot would not affect projects such as the sale of a controlling stake in fuels-distribution unit BR Distribuidora, which the company has been working on since last year and expected to complete quickly in 2017.

The sale of BR Distribuidora, which owns Brazil's biggest network of service stations and is the country's largest seller of diesel and gasoline, is considered the crown jewel of the divestment program and could raise as much as $6 billion for the company, according to analysts' estimates.

Petrobras plans to sell operational control of the unit, but retain a majority of BR Distribuidora's total capital to retain the lion's share of the lucrative subsidiary's profits.

The new transparency rules mean that Petrobras will have to publish a list of companies and investors interested participating in the bidding, which could have a chilling effect on competition for assets, industry officials said.

The TCU requested improvements to the divestment sales process, however, because of concerns that asset sales could be directed toward specific companies or parties in much the same way a corruption scandal involving construction projects evolved over the past decade.

Petrobras said evaluation of the sales methodology was ongoing.

"The divestment process is subject to continuous improvements, always observing the market's best practices for acquisitions and divestments," the company said.

Despite the court-ordered restart, Petrobras said it still planned to meet its asset-sales target.

"Petrobras reaffirms the maintenance of its target for partnerships and divestments established in the 2017-2021 investment plan of $21 billion for the two-year period of 2017-2018," the company said.


TWO SALES UNAFFECTED


The new divestment rules will not affect two sales that were part of the five projects allowed under the TCU's initial injunction handed down in December 2016, the court and Petrobras said.

Petrobras has already completed three of the divestitures, but will now be cleared to conclude negotiations to sell a 100% stake in the Bauna Field and a 50% share of the Tartaruga Mestica Field offshore Brazil to Karoon Gas Australia as well as the company's stake in the St. Malo Field in the US Gulf of Mexico.

Karoon's purchase of the Bauna and Tartaruga Mestica, however, is still subject to an injunction handed down by a lower federal court, one of several cases involving lawsuits filed by oil workers in Sergipe and Alagoas states who contested the sales. According to legal experts, the TCU's ruling should allow Petrobras to overturn the injunction on appeal.

Petrobras already won recent rulings that cleared the way for it to complete the $5.19 billion sale of natural gas pipeline operator Nova Transportadora do Sudeste, or NTS, to a consortium led by Brookfield Asset Management, as well as the $385 million sale of Petroquimica Suape and Companhia Integrada Textil de Pernambuco, or Citepe, to Mexico's Alpek.

In addition to the sale of the St. Malo stake, Petrobras has also been seeking buyers for its other assets in the US Gulf of Mexico as part of a broader retreat from operating overseas in recent years.

Petrobras operates the Cascade, Chinook and Cottonwood fields, while holding minority stakes in the Hadrian South and Lucius fields.

--Jeff Fick, newsdesk@platts.com
--Edited by Jonathan Loades-Carter, jonathan.carter@spglobal.com