While global oil giants have taken significant steps toward biofuel generation, Brazil’s state-owned energy company Petroleo Brasileiro S.A (PBR) or Petrobras S.A. is no exception. The company recently acquired 50% stake of Bioleo Industrial and Comercial, a local biodiesel company. The deal was made for a total consideration of 15.5 million Brazilian reals ($8.8 million). Petrobras made the purchase through its biofuels unit, Petrobras Biocombustivel.
Bioleo is situated in Feira de Santana, state of Bahia. The company has the capacity to process 130,000 tons of grains of several types of oilseeds. The unit also has a storage capacity for 30,000 tons of grain and tankage for 10 million liters of oil.
Petrobras and the other partners (holding the remaining 50% stake in Bioleo) will control the operations of Bioleo. Under the terms of the deal, the company will provide 6 million Brazilian reals for investments in operational and HSE (Health, Safety, and Environment) improvements, which will be disbursed equally by the partners.
In a separate development, Petrobras signed a farm-in agreement with Karoon Gas Australia Ltd, an energy exploration company. As per the agreement, Karoon will acquire a 20% interest in Maruja and Quasi Prospects, located in the offshore Santos Basin, Brazil. Subject to obtaining regulatory approvals in Brazil, Karoon will get a 20% interest in both blocks by funding 35% of a well in the Maruja Prospect, as part of a two well drilling program.
Headquartered in Rio de Janeiro, Petrobras enjoys strong market share positions in the petroleum product and liquefied petroleum gas (LPG) marketing businesses in Brazil. Given the pipeline full of development projects and impressive exploration successes, we have an optimistic outlook for the company.
However, uncertainty over the capitalization timeline and the company’s huge 2010-2014 investment budget along with the absence of any near-term positive catalyst compels us to stay on the sideline.
We have a Zacks Rank of #3 (short-term Hold recommendation) on Petrobras ADRs. We also reiterate our long-term Neutral rating.