(Bloomberg) — Petrobras’ shift away from oil-field divestment is motivating a pivot by Brazil’s junior drillers to corporate acquisitions as the most-viable expansion strategy.
The independent Brazilian crude producers that grew the most from buying Petrobras’ fields — PRIO SA, 3R Petroleum Oleo e Gas SA, Enauta Participacoes SA and PetroReconcavo SA — are all either engaged in merger negotiations or assessing potential acquisitions, according to Brazilian oil executives and people familiar with the discussions.
One of the sellers is Oslo-listed Seacrest Petroleo Bermuda Ltd., which has onshore fields in southeastern Brazil and has hired Goldman Sachs Group Inc. to help find a buyer, the people said. Seacrest wrote in an email that it doesn’t comment on market speculation. Goldman declined to comment.
These junior oil explorers offer equity investors eager for exposure to the Brazilian oil sector an alternative to state-run behemoth Petrobras. Although the output from these relative newcomers pales in comparison to supplies produced by the national oil company, any additional barrels they pump aid Brazil in its goal of entering the top five of global sources of crude and gas this decade.
Read More: Brazil Oil Juniors 3R, Enauta Rise After Advancing Merger Talks
“The way for them to grow and expand operations is really through M&A,” Fabiana Gobbi, an associate director at S&P Global Ratings who covers Brazilian oil producers, said in an interview.
The biggest example of the trend toward consolidation is the battle for 3R, which operates on and offshore. PetroReconcavo was negotiating a merger with 3R earlier this year before Enauta delivered a competing bid that, so far, is prevailing.
Petroleo Brasileiro SA, as the Rio de Janeiro-based oil major is known, began selling some mature, onshore fields and shallow-water assets in the late 2010s after entering financial difficulties tied to fuel subsidies and a wide-ranging graft scandal.
For Petrobras, it was a pronounced shift and gave foreign and domestic drillers opportunities to buy wells already pumping oil and gas, as opposed to high-risk exploration licenses.
After President Luiz Inacio Lula da Silva took office in 2023, Petrobras abandoned its narrow focus on the biggest discoveries in deep seas and made onshore and international operations a priority again.
“Today, we have assets that are very strategic for us, that have an elevated level of production and good profitability,” Ana Zettel, an executive manager at Petrobras’s upstream division, said during an interview.
Still, Petrobras hasn’t completely halted sales of lower-performing fields and is continuously reviewing its portfolio, she said. In the past six months, Petrobras divested two fields — one to Enauta and another to Perenco SA.
Acquisition Targets
PRIO, an offshore producer focused on the Campos Basin, is interested in buying a stake in the Peregrino offshore field that is operated by Equinor ASA. There is an expectation that the Norwegian producer could sell its Peregrino holding after it gets bigger projects up and running in Brazil, the people said.
In an email, PRIO said it doesn’t have any ongoing negotiations but that it is always looking at ways to grow and doesn’t rule out asset purchases in Brazil or the US sector of the Gulf of Mexico. Equinor said it doesn’t comment on market speculation.
The Brazilian units of Karoon Energy Ltd. and BW Offshore Ltd. could become acquisition targets because they each have offshore fields in the Campos Basin without much potential to expand, Gobbi said. Karoon declined to comment and BW didn’t respond to an inquiry.
PetroReconcavo, which produces the equivalent of roughly 26,000 barrels a day, is evaluating smaller drillers, the people said. PetroReconcavo could try and merge with the company created by 3R and Enauta, if that deal goes through, or hunt for other options, the people said.
PetroReconcavo said it was in a quiet period in response to questions. It denied a local media report that was negotiating a merger with Eneva SA, a natural gas producer, according to an Apr. 24 filing.
Meanwhile, Seacrest has two clusters of onshore fields in Espirito Santo state and a storage terminal operated by Petrobras’ Transpetro unit. Seacrest’s 31 fields currently produce about 8,000 barrels a day.
“Expect this horse-trading and consolidation of positions to continue as companies begin to size up in earning the true potential of their new holdings,” said Schreiner Parker, managing director for Latin America at Rystad Energy AS.
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