TNK-BP, BP’s Russian oil venture, has reached an agreement to buy a 45 per cent stake in Amazon oil exploration blocks from Brazil’s HRT Particiapoes for $1bn.
The deal marks the largest upstream investment by the Anglo-Russian oil venture as it seeks to expand internationally, even as its shareholders – BP and its Russian billionaire partners – wrangle over the legal fallout from BP’s failed attempt to form a strategic alliance with Rosneft.
Mikhail Fridman, one of TNK-BP’s billionaire shareholders who also serves as its chief executive, said in a statement the deal would give the venture “access to significant new resources in one of the world’s fastest growing markets”.
The company said the 21 oil and gas exploration blocks, located in the largely untapped reserves of the Amazon’s Solimoes river basin, would bring TNK-BP “a net prospective and contingent resource of 789m barrels of oil equivalent”, according to a Degolyer and MacNaughton reserves audit report.
TNK-BP had earlier this year signed a memorandum of understanding with Brazil’s PetroEnergia for the 45 per cent stake after months of talks. The deal was set to be the third major foreign foray by the venture after it paid $1.8bn for BP’s pipeline and production assets in Venezuela and Vietnam last year. But it had to renegotiate the deal after HRT exercised a call option with PetroEnergia in May to take over the stake.
HRT said it would transfer the holding to TNK-BP as soon as the deal was approved by Brazilian regulators and would receive payment of $1bn over two years. The Brazilian start-up said it would remain the operator of the 21 blocks and would have the right to receive additional payments of up to $5bn over 10 years to include for compensation for past expenses and future earn-out payments.
A person close to TNK-BP said the deal had also granted the Russian oil venture an option to further increase its stake by 10 per cent and take over operation of the field. The option was exercisable 2.5 years after the transaction closes, the person said.
Until then, the blocks would be operated by HRT under management that would be rotated every three years, with HRT taking the first stint at appointing the management team, while TNK-BP would appoint the chief financial officer. These rights would swap every three years no matter which company was operating the blocks, the person added.
Deep in the Amazon rainforest, the Solimões reserves remain largely untouched due to environmental concerns and the high costs of pumping oil in such an isolated area.
After discovering the vast ‘pre-salt’ fields further south in Rio de Janeiro in 2007, Brazil is now tipped to become one of the world’s biggest oil producers of the next decade.
José Sergio Gabrielli, chief executive of Brazilian oil company Petrobras, said on Monday he expected the country to be producing 6m barrels of oil and gas a day in ten years’ time.
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