CNPC buys Petrobras' Peru business in $2.6 bn deal
The deal will help the Brazilian state-owned company ease financial pressure
China National Petroleum Corporation (CNPC) will buy Petrobras' business in Peru in a $2.6 billion deal that expands China's footprint in Latin America's oil patch and will help bolster the Brazilian state-owned company's balance sheet as it faces mounting financial pressure at home.
"We think this is a mutually beneficially deal for cash-strapped Petrobras, which is focusing on commercialising domestic deep-water projects, and for PetroChina, which increases its overseas upstream footprint," Gordon Kwan, an analyst at Nomura, an investment bank, wrote in a note to investors.
CNPC will acquire stakes in three licences as part of the deal. It will acquire a 100% interest in Block X, a mature field that produced 16,000 barrels of oil equivalent a day (boe/d) last year, as well as a 46.16% stake in Block 57 and a 100% interest in nearby Block 58.
Blocks 57 and 58 are two of Peru's most promising exploration areas. Block 57, located in the Amazon near Cuzco, has seen two major gas discoveries - the Kinteroni find in 2008 and the Sagari discovery lat year - that could hold as much as 4 trillion cubic feet (cf) of reserves, according to the block's operator Repsol. The Kinteroni field started producing at a modest 3,500 boe/d this year, but will rise rapidly to around 36,600 boe/d by 2017, according to Nomura data.
Block 58 is also thought to hold significant gas potential, but has not been as extensively explored. In November last year, Petrobras said that it had discovered 2 trillion cf of natural gas after drilling three wells on the block, and that the figure could rise with further drilling and geophysical work.
Crucially, both blocks are also near the gathering, processing and pipeline infrastructure at the Camisea gas project at Block 88, which is connected to Peru's liquefied natural gas (LNG) export infrastructure on the Pacific coast. Asia Pacific is becoming an increasingly important market for Peru's gas, and CNPC may be eyeing the country's LNG potential as it looks for new potential suppliers.
"Peru is among the relative stable countries in Latin America in terms of investment environment. The three target blocks are of relative good quality, with expected profitability potentials. The success of the project will help to expand the scale of cooperation of the group in Latin America's oil and gas field," CNPC's publically listed subsidiary PetroChina said in a regulatory filing.
The deal is also further confirmation that troubles at home have not slowed down CNPC's international expansion. The company has been embroiled in scandal after the Chinese government announced in August that a number of senior officials at the state-run company were under investigation for "severe breaches of discipline," widely understood to be corruption.
Since then, though, the company has been part of a consortium, which included Petrobras, that won the rights to develop the multi-billion barrel Libra field offshore Brazil and has now completed a major deal in Peru.
Latin America is becoming an increasingly important region for China's oil and gas companies. "We believe the deal is symbolic of China's interest in expanding its presence in South America, just as other oil majors were discouraged by Venezuela, Argentina, and cost overruns in Brazil," Kwon said.
The Chinese government has extended $40bn in oil-for-loans deals to Venezuela, where CNPC, China National Offshore Oil Corporation (Cnooc) and Sinopec all have significant projects. The country has extended billions of dollars more in similar loans to Ecuador and CNPC is part of a $12bn refinery project in the country, the largest capital project ever in Ecuador.
In Brazil, Chinese oil companies, led by Sinopec, have completed deals worth more than $16bn over the past seven years, according to the IEA. And China's stake in the Libra project will ensure its place at the centre of Brazil's booming oil industry for decades to come. Chinese companies have also shown a keen interest in Argentina's potentially huge Vaca Muerta shale play, though it so far only has a modest interest in the area.
For Petrobras, the deal marks a step forward in its $9.9bn divestment programme, which is aimed at shedding international assets to allow it to focus its spending on its Brazilian projects. The company has now sold off $7.4bn in assets this year, analysts at Bank of America Merrill Lynch said in a research note.
Although promising, its Peru assets would have required significant upfront spending to bring into production at a time in which the company is facing increased financial pressure at home.
Petrobras plans to spend $236.7bn between 2013 and 2017, most of which will go towards developing a series of major deep-water projects, only a few of which have started production yet. At the same time, the company is suffering losses in its downstream business as it is forced to sell imported gasoline, diesel and other fuel products at a loss in the domestic market. The government has sought to cap fuel prices to keep inflation down. Credit rating agencies have warned Petrobras it could be downgraded if its debt, which surpassed $100bn this year, continues to grow.