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Petrobras (PBR) Up on Strategic Partnership Deal With Shell


Brazilian oil giant Petróleo Brasileiro S.A. aka Petrobras PBR and European super major Royal Dutch Shell plc RDS.A recently inked a Memorandum of Understanding (MoU) to develop pre-salt fields in Brazil. Following the development, shares of Petrobras moved up by 1.84% to eventually close at $9.98.

The strategic collaboration will enable the companies to combine their know-how and focus on operational efficiencies for the construction of wells, logistics and aviation safety. Shell is poised to benefit from the management’s expertise and successful cost-cut initiatives of Petrobras. Petrobras will also gain from Shell’s technology expertise and wide experience in deepwater markets. The partnership will be valid for five years, following which there will be an offer of renewal. Currently, Shell and Petrobras have partnership in 10 exploration and production consortia, each operating in five blocks. The oil giants intend to form a special committee to assess the development of the operational process.

The strategic partnership with Shell is in line with Petrobras' Business and Management Plan of 2017-2021, which emphasizes on the development of deep-water production. It will also help Petrobras, which is struggling with money-laundering scandals, to lower business risks.

Post Shell’s $50 billion acquisition of BG Group, the Anglo Dutch giant has been enhancing its upstream portfolio in the country. Shell owns minority interests in the Libra, Lula, Sapinhoá, Lapa, and Iara fields, all of which are located in the pre-salt Santos Basin, off Brazil.The company plans to invest in more standardized deep-water vessels over the next three years in Brazil.

The amendment in Brazil’s oil industry laws has paved way for viable investments in the country. With the regulation changes brought in by President Michael Temer in the latter half of 2016, Brazil revamped its pre-salt law and opened up operatorship of blocks to all foreign companies and scrapped Petrobras’ obligation to serve as the area’s sole operator. By offering a vast array of acreage, including pre-salt fields, Brazil is reasserting itself as a destination for foreign investment. In December, Total S.A. TOT entered upon a deal to buy stakes in Brazilian oil fields. Other European oil producers have also been motivated to purchase stakes in the deep-water discoveries that have been driving Brazil’s production growth. The energy players are getting more inclined toward the deepwater acreage around the existing discoveries or fields as against wildcat drilling owing to its low risk and short cycle characteristics amid the weak crude environment. Evidently, Statoil ASA STO acquired Petrobras’ stake in the Carcara find in 2016. ExxonMobil Corporation is also in talks with Petrobras for a strategic partnership expanding the exploration momentum in the country.

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Headquartered in Rio de Janeiro, Petrobras is the largest Latin American oil and gas integrated company. It is involved in the exploration, production, refining, retailing and transportation of petroleum and its byproducts, both domestically and internationally. Petrobras has gained 19% in the last three months compared with 8% growth of its industry.

Petrobras presently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.

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