Current RDS.B Stock Info

On December 30, 2013, Royal Dutch Shell (ticker: RDS-B) completed a $1 billion transaction with Petrobras (ticker: PBR) to acquire an additional 23% interest in the Parque das Conchas (BC-10) offshore Brazil. Its working partner, India-based ONGC Videsh, also increased its stake by 12%. The Brazilian government has already given its approval.

PBR originally held a 35% interest in BC-10 and planned to sell its rights to China’s Sinochem Group in August 2013 for $1.54 billion. Shell and ONGC exercised their right of refusal by acquiring PBR’s assets, effectively blocking Sinochem from the deal. Pro forma for the transaction, effective January 1, 2013, Shell increased its working interest to 73% from 50% and will remain the operator. ONGC Videsh’s stake rose to 27% from 15%.

Total proceeds to PBR, including ONGC’s payment, is $1.636 billion.

Details on BC-10

Pages from Webcast-3T13-RI-InglesBC-10 is roughly 75 miles offshore Brazil in the Campos Basin and includes four deep-water fields with depths ranging from 5,000 feet to 6,400 feet.

The project is currently producing roughly 50 MBOEPD and has produced more than 80 MMBOE since being placed online in 2009. Two additional phases are in place. The Argonauta O-North field, nearby BC-10, came online on October 1, 2013 and is expected to produce at a peak of 35 MBOEPD. Final investment decisions are being made on BC-10, which is expected to reach a peak production of 28 MBOE once brought online.

The license for the fields expires at year-end 2032.

Petrobras Update

Petrobras is the state-run oil company of Brazil and has operations in 24 countries across five continents. It is the largest producer in South America and participates in E&P, refining, trade, transportation, petrochemicals, oil distribution, electricity, biofuels, and sources of renewable energy. PBR celebrated its 60th anniversary on October 3, 2013.

PBR plans to divest $9.9 billion in assets by 2017, including stakes in Gulf of Mexico blocks and exploration assets in Africa. It sold its Peruvian assets to PetroChina on November 13, 2013, for $2.6 billion.

PBR is directing its attention to the Libra field offshore Brazil. The country’s regulator, Agência Nacional do Petróleo, believes the play holds between 8 billion and 12 billion BOE of recoverable resources. A 35-year production sharing contract was reached with four companies on October 21, 2013, with each agreeing to pay a $6.9 billion signing fee and pledge 41.65% of their profit oil to the Brazilian government. PBR retains a 40% stake in the field and will be the operator.

According to the EIA, Brazil is the world’s 10th largest energy producer and approximately 90% of its oil production comes from deepwater projects. While Petrobras is still run by the Brazilian government, the company has been more welcoming to private investment than fellow Latin American countries like Venezuela  and Mexico. Its approach has helped finance expensive offshore projects. Mexico recently approved privatizing its industry, ending a monopoly that spans back to 1938.

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