The board of Brazilian state-led oil company Petrobras has approved the sale of natural gas pipeline operator Nova Transportadora do Sudeste, or NTS, to a consortium led by Brookfield Asset Management for $5.19 billion, the company said Friday.
Announcement of the completed deal had been expected since September 8, when Petrobras said negotiations for the sale of the pipeline unit had been completed successfully.
The deal is the largest yet under Petrobras' 2015-16 divestment program, which aims to raise $15.1 billion to pay down a massive debt load run up during the oil boom when prices were more than $100/b.
The sale brings the total volume of cash raised over the past 21 months to $9.3 billion.
While that is still short of the company's overall target, Chief Financial Officer Ivan Monteiro said this week Petrobras would deliver the asset sales as promised to the market.
"This operation holds great relevance to Petrobras divestment plan, corresponding to about 35% of the $15.1 billion target for 2015-2016," Petrobras said in a filing with stock regulators.
Petrobras wants to expand asset sales over the next two years, with plans to sell $19.5 billion via divestments and partnerships in 2017-18. The expanded divestment program was announced Tuesday as part of Petrobras' 2017-21 investment plan that forecasts spending of $74.1 billion over the next five years and set a 2021 production target of 2.77 million b/d.
The company expects to reduce its role in natural gas distribution and transportation as well as refining, where Petrobras is Brazil's dominant player.
In addition, the company announced plans to exit the biofuels, fertilizer and petrochemicals sectors. The moves are aimed at allowing Petrobras to focus primarily on its core business of exploration and production of oil and natural gas.
Petrobras also has put a package of onshore and shallow-water oil fields up for sale, as well as stakes in wholly owned subsidiaries in the fuels distribution and logistics industries.
Despite a plethora of assets still up for sale and plenty to do before the divestment goal is met, analysts say Petrobras' recent successes have eased concerns whether the company will raise enough cash to make a dent in its $124 billion debt load.
The sale of NTS and Petrobras' 66% stake in the offshore Santos Basin BM-S-8 block containing the promising Carcara subsalt discovery underscore a shift in the company's ability to sell off prime assets, according to analysts.
"Petrobras' previous management had a difficult time getting approval to sell larger assets," Phillip Soares, analyst at Ativa Investimentos, told S&P Global Platts. "The perception we get today from the tone of the company's administration is that this is no longer a problem, so large-scale asset sales are more probable."
NEW OPPORTUNITIES
Petrobras announced in July its plans to gradually reduce its role in the natural gas segment over the next few years in a move that will open the sector up to greater competition and lure investment from other players in the industry.
The sale of NTS comes after Petrobras agreed to divide its pipeline transportation business as part of a restructuring approved by the National Petroleum Agency, or ANP, the country's lead regulator for the oil, gas and biofuels industries.
The restructuring created NTS, which operates pipelines in the country's more-industrialized south and southeast, and Transportadora Associada de Gas, or TAG, which operates pipelines in the north and northeast regions of Brazil.
Petrobras operated a total of about 9,000 kilometers of pipelines in Brazil before the restructuring, although not all of the pipeline infrastructure was included in the restructuring.
The sale is expected to lead to an eventual expansion of Brazil's pipeline network, which is concentrated along the more-populated regions along the country's Atlantic Ocean coastline.
Brazil's new government recently unveiled a program, dubbed "Gas to Grow," to increase use of the cleaner-burning fuel.
Natural gas is primarily used to fuel thermal-power plants to generate electricity during times of peak use or drought, which can affect output from Brazil's hydroelectric dam system.
"This operation will open opportunities for partnerships with other companies that have more experience and greater ability to invest, as well as contribute to a strengthening of the natural gas industry in Brazil," Petrobras said.
The sale will also lead to "new investments in the expansion of gas transport infrastructure" in line with the ANP's goal of making the sector less vertically dependent on Petrobras, the company added.
Brookfield, a long-time investor in Brazil, also expands its pipeline holdings into a promising market ripe for growth once Brazil emerges from its worst recession since the 1930s. Brookfield already owns and operates 14,000 kilometers of pipelines in the US, Canada and Australia.
The consortium led by Brookfield also includes British Columbia Investment Management Corp., China Investment Corp. unit CIC Capital Corp and Singapore sovereign wealth fund GIC Private Ltd.
The value of the deal was in line with analysts' estimates, with Petrobras saying several valuation techniques were used to determine the final sales price.
The company has attempted to increase transparency after several previous transactions were found to have been part of a wide-ranging corruption scheme involving former Petrobras executives, Brazilian political parties and politicians as well as some of the country's biggest construction and engineering firms.
"The sale of NTS was conducted via a competitive process and the price of the transaction was evaluated by four financial institutions via three fairness opinions and one valuation report," Petrobras said.
Petrobras will receive about 84% of the sales price, or $4.34 billion, upon the deal's closing, with the remaining $850 million paid over a five-year period, the company said. The deal is subject to approval by Petrobras' shareholders and regulatory authorities, the company said.
