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Brazil's Petrobras to form refinery joint venture with China's CNPC

Rio de Janeiro — Petrobras is to form two joint venture companies with China National Petroleum Corp. (CNPC) to complete construction of a refinery and revitalize four mature fields in the offshore Campos Basin, the state-owned Brazilian company said Tuesday.

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The accord is the latest effort by Petrobras to reduce its dominant stake in Brazil's refining segment, where the company controls 98% of installed processing capacity. The deal, if completed, would also represent the first foray by a Chinese company into the country's downstream sector and the first foreign participation in a refinery since 2010, when Spain's Repsol sold its 30% stake in Refinaria Alberto Pasqualini (Refap) to Petrobras.

CNPC, meanwhile, also bolsters China's ongoing expansion in Latin America's largest economy. CNPC currently holds a 10% stake in the Petrobras-operated Libra Field, Brazil's first subsalt field sold under the country's production-sharing regime in 2013. Petrobras and CNPC also teamed up with BP to buy the hotly contested Peroba area during Brazil's fourth subsalt production-sharing bid round in June. CNPC owns a 20% minority share in the Petrobras-led project.

The two companies signed a letter of intent to study CNPC's potential participation in Complexo Petroquimica do Rio de Janeiro, also known as Comperj, and the Marlim, Marlim Leste, Marlim Sul and Voador fields in July under the auspices of a broader strategic partnership announced in October 2017.

"With the signing of this integrated agreement, we have made a significant advance in the strategic partnership with CNPC to conclude the Comperj refinery and implement a consistent project to revitalize the Marlim Field," Petrobras CEO Ivan Monteiro said.

While the two companies finally agreed on a business model for the strategic partnership, additional evaluations are still needed before a final decision to restart work on the shuttered refinery, Petrobras said. The two companies will conduct a technical evaluation of Comperj's current state. The refinery has sat idle since 2015. Petrobras and CNPC also need to determine the size of investment needed to complete construction of Comperj, which was more than 80% finished when Petrobras halted work originally, as well as the economic viability of the refinery.

"The studies will be conducted by a team of specialists from both companies and external consultants," Petrobras said.

Once the studies are concluded, a final decision on the JV will be made, Petrobras said. It did not give a time frame for that decision. Under the initial terms, however, Petrobras will retain 80% of Comperj and CNPC will own the remainder, it said.

Comperj, located just outside Rio de Janeiro with access to the country's second-biggest market, was over budget and behind schedule. Petrobras stopped work on the 165,000 b/d capacity single refining train after it was found to be part of a corruption scheme involving former company executives, local politicians and several of Brazil's biggest construction and engineering firms.

In the wake of the allegations, Petrobras said it would not complete construction the refinery without a partner.

MARLIM REVITALIZATION

The deal also outlines a second JV in exploration and production, with CNPC taking a 20% stake in the Marlim complex that includes the Marlim, Marlim Leste, Marlim Sul and Voador fields, Petrobras said. Petrobras will own an 80% operating stake in the fields.

Marlim Sul was Brazil's fifth-biggest oil producer in August at 145,000 b/d, with Marlim right behind at 123,000 b/d and Marlim Leste following in seventh place at 75,000 b/d, according to the latest data available from the National Petroleum Agency (ANP). Marlim Sul also produced 2.8 million cu m/d of natural gas in August, making it the country's eighth-biggest gas producer, while Marlim produced 1.7 million cu m/d and Marlim Leste 1.2 million cu m/d, ANP data showed.

Voador was not among the country's 20 largest oil and gas producers, according to the ANP.

The partnership should also help reduce Petrobras' costs for a revitalization of the Marlim complex that would see production from several aging offshore platforms consolidated into two floating production, storage and offloading vessels, or FPSOs, in 2021 and 2022, according to Petrobras' 2018-2022 investment plan. The Marlim partnership also appears similar to an agreement with Norway's Equinor, which purchased a 25% stake in the offshore Roncador Field for $2.0 billion in cash and commitments to meet Petrobras' share of about $550 million of spending aimed at boosting recovery rates.

Petrobras and CNPC will process the increased output of the Marlim complex at Comperj.

"The heavy oil produced in the Marlim cluster has characteristics adequate for the Comperj refinery, which is projected to process this type of oil at a high conversion rate," Petrobras said.

-- Jeff Fick, newsdesk@spglobal.com

-- Edited by Keiron Greenhalgh, newsdesk@spglobal.com