Petrobras has agreed to a new five-year deal to supply naphtha to Braskem, the Brazilian companies said June 10.
"The contracts guarantee Braskem's ability to compete in the supply chain and stimulates investments and new business in the petrochemicals sector, which is an essential segment of the country's industrial activity," the petrochemical company said in a statement.
The new deals replace existing sales contracts that will end in December, the companies said.
The supply agreement represents a significant advance for Braskem as the company deals with fallout from the bankruptcy filing of controlling shareholder Odebrecht, which faced a series of lawsuits and other issues related to the involvement of the company and several executives in a wide-ranging corruption scheme. Issues related to the proceedings scuttled Odebrecht's attempt to sell Braskem to LyondellBasel in a deal that Petrobras planned to join. Odebrecht and state-led Petrobras operate the company under a shareholder agreement, but Petrobras would like to shed its stake in the petrochemicals company under its $20 billion-$30 billion divestment program for 2020-2024.
Odebrecht holds 50.1% of Braskem's voting capital, with Petrobras retaining the remainder.
Petrobras and Odebrecht are in talks about adapting Braskem's share structure to a single class of common shares, which would allow the shares to be traded on the B3 Stock Exchange's Novo Mercado mechanism. Petrobras would then use the shift to the Novo Mercado to sell its stake in Braskem via a capital markets offer similar to how Petrobras sold off its stake in fuels distribution unit BR Distribuidora in 2019.
"It doesn't make any sense for Petrobras to be a partner in Braskem," Petrobras CEO Roberto Castello Branco said during a webinar on May 25. "First, Petrobras isn't an investment fund. We don't operate Braskem, we only have a position as shareholder."
While capital markets have been volatile since the global coronavirus outbreak, Petrobras expects the transition to the Novo Mercado to take place in the second half of 2020, according to executives. The sale would then be made by the end of 2020 or in the first quarter of 2021, according to Castello Branco.
Long-term supply
The long-term contract also represented a shift in strategy for Petrobras, which had reduced naphtha sales to Braskem in recent years amid a potential exit from the industry under its asset-sales program.
The latest supply agreement will deliver a minimum of at last 650,000 mt annually, with an additional maximum volume of 2.8 million metric tons possible, Braskem said. The naphtha will be delivered to Braskem facilities in Bahia and Rio Grande do Sul states, the two companies said. Braskem will pay 100% of Amsterdam-Rotterdam-Antwerp naphtha prices, according to the companies.
Braskem expects petrochemicals demand to fall 5%-6% year on year in 2020 because of the coronavirus pandemic, company officials said June 3. Sales tumbled 20% in April after Brazil implemented social-distancing measures, but easing restrictions caused a better-than-expected surge in sales in May, according to the company.
Espirito Santo Basin blocks
In a separate statement, Petrobras also extended a deadline for companies to express interest in the sale of five offshore blocks in the Espirito Santo Basin. Petrobras partnered with Equinor, Total and small Brazilian player Enauta to buy the blocks during Brazil's 11th bid round held in 2013. Exploration periods for some of the 11th bid round blocks were recently extended because of environmental licensing issues related to the sale.
The troubles caused Equinor and Total to relinquish their stakes in the blocks to Petrobras, with Petrobras now holding 100% of the ES-M-596, ES-M-671 and ES-M-743 blocks, Petrobras said. Petrobras plans to sell up to 50% of the blocks, while retaining a 50% operating stake, the company said.
Petrobras also currently holds an 80% operating stake in the ES-M-598 and ES-M-673 blocks, with Enauta retaining the remaining 20%, according to Petrobras. Petrobras expects to sell up to 40% of its stake in the two blocks, the company said.
The blocks are adjacent to three areas holding oil and natural gas discoveries: Parque dos Deuses, Parque dos Doces and Parque dos Cachorros, Petrobras said. The areas all hold subsalt potential, according to the company.
Oil companies will now have until June 18 to submit a declaration of interest to participate in the sales process, Petrobras said.
