Shell Looks to Brazil for Further Acquisitions
Royal Dutch Shell is leading the chase to acquire more assets in Brazil and to become that country’s largest oil company after Petrobras. The asset chase comes in the wake of Shell’s planned takeover of the BG Group for an eye-watering US $70 billion and at a time of depressed oil prices.
Brazilian assets are up for grabs as its state-controlled oil company Petrobras embarks on a massive US $14 billion divestment plan to cope with its debt, with low oil prices and a corruption scandal that still may claim the job of Brazilian President Dilma Rousseff.
The most attractive assets up for grabs are Petrobras’s 30% stakes in offshore oil discoveries in the Campos and Santos basins of the Atlantic Ocean. These reserves are located in very deep waters over 2,000 metres. They are very expensive to develop but could be important to meet growing global oil demand in future decades.
For Petrobras this sale would be a way of coping with tightened credit conditions, while for Shell it would be an expansion into some of the most attractive acreage available in today’s oil business. But such a deal would face stiff opposition from nationalist politicians in Brazil who want to keep Petrobras as a national champion.
Even President Dilma Rousseff pledged that tax revenues from these pre-salt oil fields would ease Brazil’s path towards the status of a developed, not developing, country.
Shell and BG combined could have a total oil production in Brazil of 500,000 barrels per day (bpd) by 2020 compared with 200,000 bpd today. This could be the equivalent of 20% of Shell’s global oil production.
Such optimism may not always apply when dealing with Brazil’s oil regulator, the National Petroleum Agency (ANP in its Portuguese acronym). The regulator ordered Shell and its Qatari and Indian partners to develop two oil fields in the Parque das Conchas areas as one single field. The potential joint output means that the ANP could levy higher taxes on the companies than if the fields were developed separately, and the companies’ profits would be lower.
The ANP made a similar order to Petrobras for a number of oil and gas fields in the Parque das Baleias areas. But Petrobras has challenged the order and is now fighting it through international arbitration tribunals. If Shell were faced with similar expensive litigation, the hoped-for Brazilian bonanza may not materialise.
Meanwhile, Shell also has plans to divest US $30 billion in assets to pay for its takeover of BG and to cope with lower oil prices. These will come from a 20% spending cut in 2015 and a series of cost savings aimed at boosting the company’s balance sheet. Once the BG deal is completed, Shell also plans major cuts to its 2016 capital expenditure budget.
Looking for Other Prospects
But the company believes that oil prices will recover to around US $90 per barrel by 2020 and is seeking further acquisitions in other key hydrocarbon provinces. One of these is East Africa. East African gas from Mozambique to Tanzania and, possibly at a later date, Kenya, could all be directed to the East Asian market.