In recent months, Brazilian state oil firm Petroleo Brasileiro SA has made several strategic moves while forming several key international alliances to ensure a strong foothold in the worldwide oil and gas market.
Petrobras is hoping to raise capital through a recently announced American Depositary Receipts (ADR) offering, as well as further expanding its exploration efforts in the US Gulf of Mexico through a swap program with US producers.
In addition, the Brazilian firm has signed a deal with Spain's Repsol-YPF SA to swap more than $1 billion worth of assets.
And Petrobras recently inked a deal with Venezuelan state oil firm Petroleos de Venezuela SA to jointly market oil in northern Brazil.
Other company news this week is dominated by the continuing frenzy of asset sales activity in Canada, mainly involving the continuing TransCanada asset selloff.
And TotalFinaElf SA is launching an exchange offer for the 4.4% of outstanding shares of Elf Aquitaine that it does not already own.
Petrobras on the road
On July 20, Petrobras kicked off a road show for Brazil's largest equity offering to date-the sale of about 153.3 million ADRs in Petrobras. Sources said that the 2?-week road show for the estimated $4 billion offering would start in New York before heading to Canada and Europe.
The Brazilian government, the controlling shareholder of Petrobras, is offering the shares, which represent 24.3% of voting shares and 14.1% of total capital in the company. Petrobras will not receive any proceeds from the placement.
Petrobras said it expects to list the ADRs on the New York Stock Exchange under the symbol "PBR." The offering will also include a share placement on the Saõ Paulo stock exchange under the symbol "PETR3."
Each ADR represents one common share of Petrobras. Petrobas currently has ADRs trading on over-the-counter markets in New York and is the market heavyweight on the Sao Paulo stock exchange's Bovespa index.
Separately, the government is selling another minority stake of 16.7%-or 28.24% of voting shares-in Petrobras worth more than 8 billion real ($4.4 billion) to retail and institutional investors in Brazil. The maximum price to Brazil's retail investors is 58 real/share.
In total, the federal government is selling a little more than 30% of its total capital in the company and will net at least $9 billion in the process. It will, however, continue to retain a stake of at least 51% in Petrobras's capital.
The government currently owns an 82% stake in Petrobras.
The international ADR offering is expected to be priced sometime this week, depending on US Securities and Exchange Commission approval. Approval for the requested NYSE listing could take several weeks and is unlikely to happen until the completion of the road show in early August, said a source with the bank syndicate managing the offering.
The issue is expected to see great demand from institutional investors in the US and abroad, given that Petrobras is a high-profile company with a solid balance sheet.
Merrill Lynch and ABN Amro Rothschild are the joint lead managers on the global offering. Co-managers for the mammoth sale are Banc of America Securities, Morgan Stanley Dean Witter, Salomon Smith Barney, and UBS Warburg.
The syndicate managers have an over-allotment option of 23.03 million shares. Should this option be exercised, the Brazilian federal government could get an additional $610 million from the share sale, bring the total amount of shares sold to 176.53 million.
The much-anticipated Petrobras global offering and its listing on the NYSE will make its shares more attractive to foreign investors, many of whom have been reluctant to buy the OTC-traded instruments. In addition, an NYSE listing will make the company's accounting standards more transparent, similar to other large US companies, analysts said.
The government has been discussing the sale of the slightly more than 30% stake in Petrobras since the end of 1997. The sale was originally scheduled to take place in 1999, but, like many other privatization efforts in Brazil, it was sidelined by congressional foot-dragging and market volatility. Then in May, a Brazilian senate panel on economic affairs cleared the way for the sale by voting against a bill to block the sale, proposed by Sen. Alvaro Dias of the Democratic Movement Party.
Petrobras reported a net profit in the first quarter of 2000 of 2.299 billion real, compared with a net loss of 1.514 billion real in the first quarter of 1999. Net sales in the first quarter were 9.231 billion real, up from 4.007 billion in the first quarter of 1999.
Petrobras to gain gulf assets
Petrobras is in advanced negotiations with US companies that operate in the US Gulf of Mexico to swap oil reserves in Brazil for equivalent gulf reserves, Carlos Alberto Pereira de Oliveira, the company's exploration and production superintendent said.
"It is necessary to increase Petrobras's reserves in countries such as the United States. It is also fundamental for Petrobras to obtain financing abroad with lower interest rates," said Oliveira.
He explained that the swap operation began 2 months ago, when Petrobras sent invitation letters to 15 companies that own fields in the Gulf of Mexico. Braspetro, Petrobras's international arm, produces 18,000 b/d on 60 blocks in the gulf and wants to increase its presence there.
Petrobras is offering to exchange 40% of the reserves from the giant Albacora Leste field in the Campos basin for equivalent reserves in the Gulf of Mexico. Other Brazilian reserves are also included in the negotiations, but Oliveira declined to name them. The superintendent said he expects the results of the negotiations to be released in mid-August.
Albacora Leste field has estimated oil and gas reserves of 0.7-1.0 billion boe. The investments required to put this field on stream total about $2 billion, said the superintendent.
Fifteen percent of Albacora Leste reserves are part of negotiations in progress with Repsol-YPF SA. The value of the assets is around $1.3 billion. These negotiations also involve the refining and distribution of oil products in Spain and Brazil.
Braspetro's strategy focuses on three regions: South America, West Africa, and the Gulf of Mexico. In South America, the company operates in several countries, but mainly Colombia and Bolivia, where it owns refineries and from where it imports natural gas. The gas will be used in Brazil's priority program to build gas-fired thermoelectric plants.
In Angola, Braspetro produces 19,000 boe/d, and in Nigeria, it has a 20% stake in Agbami field.
Petrobras, Repsol-YPF swap
Petrobras and Repsol-YPF have finalized an agreement to swap assets, said a Petrobras statement. Signing of the memorandum of understanding took place July 31.
The transaction was originally announced in April (OGJ Online, Apr. 30). The assets involved in this swap are worth more than $1 billion; the definitive figure will be released within 2-3 months after a "due diligence" process of adjustment is concluded.
When Repsol acquired YPF in July of last year, it committed to Argentina's government to sell an 11% stake of the company, which today controls 60% of Argentina's oil products market. Argentina's government gave Repsol-YPF until the end of this year to sell the 11% stake.
The agreement says Petrobras will become the owner of EG3, a subsidiary of Repsol-YPF located in Argentina that has 700 service stations and a 12% stake of Argentina's automobile fuels market. A 30,000 b/d refinery in Bahia Blanca, Argentina, will stay with Petrobras.
On the other hand, Repsol-YPF will have the right to sell refined products through 350 Petrobras service stations in the center, south, and southwestern regions of Brazil. The stations sell about 1.4 million l./day of oil products. The Spanish company will have a 30% stake in the Petrobras Alberto Pasqualini refinery, in Rio Grande do Sul state. The plant has a refining capacity of 188,000 b/d, and the two companies will jointly make "strategic investments to upgrade the refinery," said the statement.
Ten percent of the giant Albacora Leste field's reserves in Campos basin, off the Brazilian Rio de Janeiro state, will stay with Repsol-YPF.
Analysts say the agreement with Brazil is highly advantageous to Repsol-YPF because the Brazilian oil products market is three times larger than the Argentine market. Petrobras also benefits, because with this agreement, the Brazilian company acquires the control of the fourth largest refining-marketing company in Argentina and at the same time enters into the Argentine market in a good competitive position.
Petrobras said that this is an important step in the company's efforts to become a multinational, with South America as the priority.
Petrobras-PDVSA marketing JV
Petrobras and PDVSA have agreed in principle to undertake a joint effort to market Venezuelan oil products in northern Brazil. The alliance will be handled through a joint-venture company.
Two agreements were signed, defining the framework for joint projects in line with letters of intent signed in June 1999. Those letters defined areas of cooperation including exploration and production, processing of Brazilian crude in PDVSA refineries, production of asphalt in Brazil, and sale of products through a network composed of service stations owned by both firms.
PDVSA Pres. Hector Ciavaldini and Petrobras head Philippe Reichstul signed the accords in late June. The move is in concert with Venezuelan Pres. Chávez's much-touted goal of Latin American integration.
One of the accords envisions meeting growing demand for oil products in northern and northeastern Brazil with products supplied by Venezuela, PDVSA said. The second accord covers the distribution of fuels in the region through 600 service stations, 300 belonging to PDVSA and 300 to Petrobras.
Ciavaldini said the network could grow to 1,800 stations in "a short time."
PDVSA says the new JV company, the name of which will be decided in coming months, will benefit from its experience in the operation of an extensive network of service stations operated by US subsidiary Citgo Petroleum Corp. The firms hope to secure about 10% of the market in the region, equivalent to about 180 million l./month in fuel sales.
The companies soon will evaluate potential associations for the reactivation of oil fields and for deepwater exploration off Venezuela, an area in which Petrobras is a world leader technologically. Reichstul said the firms expected to sign an additional agreement within 2 or 3 months to cover exploration and production projects in Venezuela.
In September, PDVSA and Petrobras will open business offices in Rio de Janeiro and Caracas, respectively, to begin activities related to the accords.
CanOxy-TransCanada
Canadian Occidental Petroleum Ltd. subsidiary CXY Energy Marketing agreed to buy Northridge Petroleum Marketing Ltd. for $40 million. Seller TransCanada PipeLines Ltd. said the transaction is part of its previously announced $3 billion divestiture program.
NPML markets and trades Canadian crude oil and refined products. NPML was one of the Northridge group of companies acquired by TransCanada in 1994. The sale also includes TransCanada Energy Marketing USA Inc.'s crude oil marketing operations in Denver.
Pending necessary consents and approvals, the sale is expected to close by the end of the month. The price includes working capital.
The sale also will keep TransCanada on track to meet its $3 billion divestiture target, said Doug Baldwin, TransCanada's president and CEO. It has already amassed $1 billion through sales of other assets, says Baldwin.
In May, TransCanada sold interests in natural gas transmission networks in Argentina, Brazil, and Chile for $440 million to France's TotalFinaElf SA (OGJ Online, May 31, 2000). It also recently sold its 17.5% interest stake in Colombia's Oleducto Central SA and 50% interest in CIT Colombiana SA to Calgary-based Enbridge Inc. for $117 million (OGJ Online, May 4, 2000).
AltaGas-TransCanada
AltaGas Services Inc., Calgary, is acquiring key natural gas gathering and processing facilities assets in southern Alberta from TransCanada PipeLines Ltd., Calgary, for $14.6 million (Can.). The assets include working interests of 65% in the Parkland gas plant, 70% in the Mosquito Creek gas plant, and 5% in the Vulcan gas plant.
These facilities have current gross throughput of 27 MMcfd, 32 MMcfd, and 43 MMcfd, respectively. The Parkland and Mosquito Creek sweet gas plants are interconnected through 70 km of gathering lines.
Located near Nanton, Alta., this gathering and processing system will constitute a new operating area for AltaGas. The area has substantial upside potential from 12 underdeveloped townships surrounding the gathering system, says the firm.
AltaGas has also acquired 33 km of pipeline adjacent to its Bonnie Glen operating area. The pipeline will be integrated with the three AltaGas gas plants in the area and has excess capacity, allowing for future growth. Gas will be delivered through this pipeline to the TransCanada Transmission and ATCO Pipelines systems.
So far this year, AltaGas has acquired interests in six gas processing plants and associated gathering systems and has expanded its existing gathering and processing assets for total investment of over $45 million.
"The potential to continue to acquire and expand natural gas facilities remains high in Canada due to robust natural gas markets and industry restructuring," said David Cornhill, president and CEO of AltaGas. "We expect to take further advantage of this opportunity to accelerate growth and add shareholder value."
Beau Canada sale
Beau Canada Exploration Ltd., Calgary, is selling its interest in the Peggo natural gas field in British Columbia to an unnamed buyer for $66.5 million (Can.) to reduce debt.
The company was to open a data room at the end of last month for potential buyers. Peggo field produces about 20 MMcfd of gas.
The sale will leave Beau Canada short of gas to meet contracts for shipment on the Alliance Pipeline from British Columbia to the US Midwest. That pipeline is scheduled to begin operations in November. Beau Canada said the shortfall will cost it about $330,000/month from November until early 2001 when it expects additional gas from new wells.
Canadian Natural-Ranger
Shareholders of Ranger Oil Ltd., Calgary, have approved a $1.6 billion (Can.) friendly takeover offer by Canadian Natural Resources Ltd. (CNR), also of Calgary. CNR said 92% of Ranger shareholders tendered their stock to the bid at $8.25/share (cash), or a maximum of $650 million.
Ranger has operations in Western Canada, the UK North Sea, Africa, and the US. CNR is a major independent in Western Canada.
CNR is expected to sell some noncore Ranger assets in Western Canada and the Gulf of Mexico to pay down debt. It plans to acquire the outstanding Ranger shares under mandatory acquisition legislation.
TotalFinaElf
TotalFinaElf's offer is being made to all holders of Elf Aquitaine American Depositary Shares (ADSs) and US shareholders of Elf Aquitaine shares.
Elf Aquitaine security holders participating in the exchange offer will receive four shares of TotalFinaElf for each three shares of Elf Aquitaine and four ADSs of TotalFinaElf for each three ADSs of Elf Aquitaine tendered in the offer.
The exchange ratio represents a premium of 11.0% and 11.9% over the closing price of the Elf Aquitaine shares and ADSs, respectively, on the Paris and New York Stock Exchanges on May 23, 2000.
