State-owned company halted sales for 90 days at the request of the Ministry of Mines and Energy
Giovani Loss — Foto: Divulgação
The suspension of the sale of Petrobras’s assets mainly threatens divestments with signed contracts that have not yet been completed, experts say. According to sources, the schedule of meetings between the buyers and the state-run company for the exchange of information and the preparation of the transfers has been interrupted in recent days, and this situation is likely to lead to litigations from the buyers, who may go to court to argue that the conditions precedent to closing the deals have been met, so the agreements must be completed. One option would be the filing for a specific performance of obligation that would force Petrobras to close the deals, lawyers said.
Last week, Petrobras confirmed that all asset sales had been halted following a letter from the Ministry of Mines and Energy (MME) requesting a 90-day suspension from February 28. The aim is to re-evaluate the current energy policy. The outcome of the situation divides specialists: some lawyers believe that the Petrobras legal team will conclude that it is necessary to complete the ongoing sales, while others believe there will be litigation.
There are five packages of assets, in total, in the situation of signed and not yet transferred: the Lubnor refinery (Ceará); the sets of onshore fields of the Potiguar and Norte Capixaba clusters; the offshore fields of the Golfinho and Camarupim clusters, as well as the fields in shallow waters of the Pescada cluster.
Some companies in this situation have even tapped the capital markets in anticipation of a deal. This is the case of Seacrest Petroleum, which completed its IPO on the Oslo Stock Exchange, Norway, in February, raising $260 million. The company signed an agreement with Petrobras for the purchase of the Cricaré cluster. 3R Petroleum issued $500 million in bond and obtained financing for the same amount from financial institutions led by Morgan Stanley for the acquisition of the Potiguar cluster. The sale was approved by Petrobras’s board of directors in January, followed by the approval of the National Petroleum Agency (ANP), and was expected to be completed by the end of March.
According to sources, Petrobras has not yet officially notified the companies of the suspensions and the companies are waiting for signals from the state-owned company to decide on the next steps. The situation affects the ability to attract investment in the sector in the country, experts say. For Alexandre Calmon, a partner at Campos Mello Advogados, the suspension is “a real catastrophe.” “The reputation of respecting contracts takes years to build and is lost with one misstep. Any move of this kind is destructive. No investor works with uncertainty, and this measure creates uncertainty,” he said.
Juliana Senna, a partner at Kincaid Mendes Vianna Advogados, said the announcement could change the perception of “Brazil risk” among investors not only in the oil and gas industry but throughout the country. According to her, the government’s initiative took the market by surprise. “There was already an intention [by Petrobras] to review the investment plan, but no one expected what was going on,” she said.
She agrees that signed asset sale agreements can lead to penalties, such as compensation, if the state-owned company fails to fulfill any obligation under the agreement, even if the suspension is temporary. “The precedent conditions have to be met,” he said. For deals that are underway but not yet signed, there is room for investors to resort to arbitration to seek compensation.
Petrobras’s divestment plan began in 2015, still in the Rousseff administration, as part of the strategy to reduce debt. By the end of 2022, the company had sold 70 assets, raising a total of R$281 billion, according to data from the Petroleum Social Observatory, a movement of labor unions linked to the National Federation of Petroleum Workers, the Brazilian Institute of Political and Social Studies (Ibeps) and the Latin American Institute of Socio-Economic Studies (Ilaese). Most of the sales took place in the Bolsonaro administration, a period in which Petrobras sold 54 assets for R$175 billion.
Lawyers question the need for the company to comply with MME’s letter. “It was an attempt to shorten a path that could have been done according to the company’s governance,” Mr. Calmon said.
Petrobras declined to comment. On the day it confirmed the suspension, the company said in a statement that the board of directors would analyze the ongoing processes “from the standpoint of civil law and within the rules of governance, as well as any commitments already made, its penal clauses and their consequences, so that the governance bodies assess the potential legal and economic risks that may arise, subject to the rules of secrecy and other applicable rules.”
Giovani Loss, a partner at Mattos Filho’s oil and gas division, said that Petrobras is violating signed contracts. Therefore, the company is subject to actions that can confirm the termination of the contracts or pay compensations. “In previous Workers’ Party’s administrations, there was no violation of signed contracts. Having uncertainty in the fulfillment of signed contracts is terrible for all sectors,” he said. Mr. Loss points out that Petrobras’s decision is also bad for the assets that did not yet have contracts, because the companies evaluating the purchases invested time and resources in the negotiations.
A group of industry associations released a note on Monday asking for clarification that the suspension only affects early-stage sales and that sales in marginal onshore and shallow-water fields will be resumed. “In addition to Petrobras, which will be able to focus its efforts on the operation of larger and more productive fields, this is a win-win situation for everyone: from the companies that took over the operation of the projects, to the new investors who entrusted their expectations of success to the companies, to the public entities and their investment and budget planning,” said the statement signed by Abpip, Onip, Abespetro, and RedePetro.
Goldman Sachs says the suspension raises uncertainties about sales but believes that signed processes are under less risk because there are penalty clauses for withdrawals. A source close to the asset sales says it is unlikely that signed sales will be canceled. “Deep down, no one believes that a signed contract will not be fulfilled,” he said. Another source in the financial market who follows Petrobras says it is too early to talk about legal uncertainty, given the speeches the new administration has made about talking to buyers. “It is natural that some steps are taken backwards, out of caution, when there is a change of government.”
*Por Gabriela Ruddy, Fábio Couto — Rio de Janeiro
Source: Valor International