As a consequence of recent changes in the Petrobras senior management, the company’s multi-billion divestment plan seems to have gained fresh momentum. In response to repeated market criticism – mainly focused on the lack of technical data of the assets put up for sale, the intended sale of assets which are close to their decomminisiong period, and also package sales of highly sought-after assets, together with those that have been repeatedly rejected by market players – the company is now more attuned to market expectations.

After a first semester of a non-buoyant market, which brought questions about the feasibility of Petrobras’ goal of selling US$15.1 billion in assets between 2015 and 2016 (Petrobras has so far raised US$ 1.6 with the sale of its assets. See our previous post on this topic here.), this figure now seems within reach, mainly due to three high profile transactions: (i) the sale of the 66% interest held by Petrobras in block BM-S-8; (ii) the divestment of shares representing the majority of the voting rights in BR Distribuidora; and (iii) the sale of Petrobras’s downstream business, Transportadora Associada de Gás (“TAG”).

The sale of BM-S-8 is the largest farm-out to date in Brazilian history. Statoil – the farmor – will pay approximately US$2.5 billion (50% upon closing of the transaction, and the remaining 50% in future instalments linked to the satisfaction of conditions subsequent, being the most relevant the unitization of an area bordering the Carcará field). Statoil will join the consortium formed by QGEP, Barra Energia and Petrogal. The crown jewel of BM-S-8 is the Carcará field: a sizeable pre-salt accumulation that could take the block’s oil production to over 35,000bbl/d in approximately 4 years from now. It is reported that Petrobras and Statoil have also agreed on strategic cooperation and on assessing future partnerships, mainly for the exchange of technical information relevant for decommissioning E&P assets.

Another sizeable transaction now expected to occur in the short term is the sale of TAG, which concentrates over 80% of the pipeline portfolio of Petrobras. This divestment has been expected since 2015, and its size will likely lead a consortium of several international players to acquire the asset for a figure within the range of US$ 4 billion and US$ 5 billion.

The third substantial divestment now expected to take place in the short term is the sale of a considerable equity stake in BR Distribuidora. After several failed attempts to launch an IPO, and then to divest a minority equity stake of 25% in BR Distribuidora, the board of directors of Petrobras approved last week a new divestment structure. If the sale goes forward as recently approved, the purchaser will acquire an equity stake representing 51% of the voting rights in BR Distribuidora, even though Petrobras may still hold a larger portion of the capital stock of the company through shares of different classes. The valuation of this transaction is also in the range of US$ 4 billion and US$ 5 billion.

The sale of Carcará and the transactions involving TAG and BR Distribuidora sent a clear open-for-business message to the market, in line with the positive market signalling since Pedro Parente joined the company as its new CEO. Mr. Parente served in key roles during the Fernando Henrique Cardoso mandates as Brazilian president, such as chief of staff and deputy finance minister.

Despite the fact that the Car Wash investigation (a thorough Federal investigation on a complex corruption scheme with political roots involving Petrobras) still poses challenges to those interested in specific Petrobras assets, the market sentiment is that after the conclusion of the impeachment process of the Brazilian president Ms. Dilma Roussef – expected at the very beginning of September – economic activity shall gradually resume and M&A activity shall experience a substantial surge in Brazil, with a focus on the infrastructure and energy sectors.

One element that shall be closely watched by those with a particular interest in Petrobras’ assets is the position of local authorities, mainly the ANP (the federal autarchy in charge of the oil & gas sector) and CADE (the antitrust federal commission). In a past not so distant, investors that purchased Petrobras assets have faced severe scrutiny by such authorities, leading to the collapse of certain acquisitions. This may still be a crucial element on sectors where Petrobras kept its dominant market position after the enactment of Law 9,478/97, which terminated the Petrobras’ monopoly in several segments of the oil & gas industry.

Another key issue which should be closely watched by market players with an appetite for further acquisitions of E&P assets is the likely enactment of Bill of Law 131/15. The key legal novelty to be brought by this bill of law if enacted will be the end of the Petrobras operatorship monopoly in pre-salt areas, which are currently subject to the profit sharing legal framework. This bill of law has already been approved in the Senate and by a special commission in the lower house of the Brazilian Congress, now pending approval in the plenary of the lower house of the Brazilian Congress and presidential approval.

It is also worth flagging that other elements of the legal framework related to the Brazilian E&P sector may be revisited, mainly those relating to the profit sharing regime and to local content, with views to boost the E&P activity in a currently challenging environment worldwide, due to falling commodity prices.

In addition to the multi-billion Dollar transactions expected in the coming months, there is also a wide range of E&P assets Petrobras will likely partially or entirely divest its respective interest:

Pre-salt offshore areas:

Sapinhoá

Tartaruga Mestiça; and

Gato do Mato

Post-salt offshore areas:

Tartaruga Verde

Golfinho

Baúna

Sergipe’s basin package (Caioba, Camorim, Dourado, Tatuí and Guaricema)

Ceará’s basin package (Curimã, Espada, Atum and Xareu)