By Bradley Olsen and Paul Kiernan
Exxon Mobil Corp., the only big oil company without a major
foothold in Brazil, is in talks to gain access to the country's
prized deep-water resources, according to people familiar with the
matter.
The talks have included discussions about a joint venture
partnership through which Exxon would invest in projects with
state-oil firm PetrĂ³leo Brasileiro SA, or Petrobras, as well as
potentially buying stakes in offshore tracts the Brazilian
government plans to lease out this year, the people said.
The specific terms of any agreement have yet to be completed.
One person cautioned that talks between Exxon and Petrobras
remained at a preliminary stage. But Exxon, which has eyed deep
water resources in Brazil for at least a decade, is working with
Hess Corp. in seeking to expand in the country after Brazil revised
its regulations last year to attract greater foreign investment,
the people said.
Representatives for Exxon, Hess and Petrobras declined to
comment.
Exxon would join French giant Total SA and Norwegian
state-controlled Statoil ASA, both of which have formed
partnerships with Petrobras and expanded in Brazil in the past
year. Royal Dutch Shell PLC has said it plans to invest $10 billion
in the country over the next five years as part of a push to double
its global deep water production.
The race to expand in Brazil comes as Petrobras is selling tens
of billions of dollars in assets in a bid to work off the largest
debt burden in the global oil industry. Brazil's conservative
government, in power since the impeachment of former President
Dilma Rousseff last year, sees foreign investment in the oil sector
as key to an economic recovery after Brazil's worst recession on
record.
Risks abound for the big oil companies. Petrobras, the dominant
player in Brazil, is at the center of an epic corruption scandal
and is financially crippled by its $118 billion debt load. And
while the business environment has improved over the past nine
months, political analysts say the 2018 presidential election could
easily reverse that trend.
Still, Brazil is one of the most important oil frontiers, with
as much as 50 billion barrels of recoverable resources. Some
analysts say the country has the opportunity to emerge as the
world's fifth-largest crude producer by 2025, behind only Saudi
Arabia, Russia, the U.S. and Iraq.
"Everybody wants to get a piece of the pie," said Kjetil
Solbraekke, senior vice president for South America at consultancy
Rystad Energy. "These are probably the most prolific,
high-returning oil assets available in the world."
Exxon's interest in a partnership is the latest example of a
strategy the company has pursued in recent years to gain access to
state-controlled oil and gas resources. To gain entry to certain
areas, the Irving, Texas, company has offered foreign players a
chance to diversify their holdings and invest alongside Exxon in
other projects around the world.
Such a partnership was at the heart of a series of deals between
Exxon and Russia in 2011 and 2012 that were later put on hold due
to U.S. sanctions. The company has also formed partnerships with
Qatar, where it holds a lucrative concession to produce natural
gas, to develop gas export projects in the Gulf of Mexico and in
Mozambique.
Joining forces with Petrobras in a similar fashion on a series
of investments may be the only way to build an offshore position in
Brazil, analysts said.
"If you don't have a relationship with a dominant state player,
such as Petrobras in Brazil, it's very difficult to go anywhere,"
said Ruaraidh Montgomery, an analyst at energy consulting firm Wood
Mackenzie.
An industry bonanza for Brazilian resources began more than a
decade ago with the discovery by Petrobras of the Lula field, which
is believed to hold billions of barrels of oil.
Named after then-Brazilian President Luiz InĂ¡cio Lula da Silva,
the field lies below several miles of ocean water and a thick layer
of salt that can make drilling risky and expensive.
Emboldened by $100-a-barrel oil prices, the left-leaning
government that ruled Brazil until last year imposed onerous
requirements on the oil industry, making Petrobras the sole
operator of oil projects in the prized sub-salt layer on the Brazil
continental shelf and demanding high levels of locally produced
parts and labor.
Brazil's notoriously complex, costly and often unclear operating
environment are among the reasons Exxon stayed on the sidelines as
other oil majors piled in.
Seeking to woo investors, Brazil's new leaders opened up the
sub-salt to foreign operators last year and reduced the so-called
local-content requirements in February. The country is also likely
later this year to auction numerous offshore blocks to companies
wishing to drill exploration wells, officials said.
Those changes are among the primary reasons Exxon is motivated
to expand in Brazil, said people familiar with the company's
plans.
Exxon holds an interest in two deep-water blocks off Brazil's
shores, including more than 160,000 acres, and drilled several dry
holes in the country more than five years ago with Hess.
Petrobras Chief Executive Pedro Parente said in an interview at
a Houston energy conference last month that "We are discussing
partnerships and divestments" and that there was a "very high level
of interest" in the company's assets.
--Sarah Kent contributed to this article.
Write to Paul Kiernan at paul.kiernan@wsj.com
(END) Dow Jones Newswires
April 04, 2017 10:56 ET (14:56 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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