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Brazil judge blocks Petrobras Statoil deal

Judge accepts oil union’s argument that sale price was 'unacceptably low' for public interest

A Brazilian judge has granted an injunction blocking Statoil’s $2.5 billion acquisition of an operating stake in the giant Carcara field on the grounds that the sale procedure fell short of competitive tendering requirements demanded of state-controlled Petrobras.

The injunction was granted in response to a popular lawsuit by the Sergipe-Alagoas  branch of Brazil's oil workers trade union, and was issued  by a judge sitting in the city of Aracruz, Sergipe. 

This was the same regional branch of the federal court where oil workers unions have obtained several similar injunctions, some of which have been overturned on appeal.

Statoil finalised its acquisition of a 66% stake in Santos basin block BM-S-8 in November 2016, concluding a negotiation process that began in July 2016.

One of the key arguments put forward by lawyers representing Petrobras and Statoil was that the injunction should not be issued against a sale transaction that has already been concluded.

However, Judge Marcos Antonio Garapa de Carvalho rejected this argument on the grounds that half of the purchase price was paid up front, but the other half only falls due with the fulfillment of contingency events relating to the unitisation process.

Statoil has estimated that the part of Carcara located within the BM-S-8 concession area harbours between 700 million and 1.3 billion barrels of oil equivalent, but around half of the Carcara structure lies on open acreage. 

This unlicensed area will be included in the "unitisation round" that Brazil plans to hold later this year, and Statoil is tipped to be a leading bidder.

Carvalho interpreted the phased form of payment to mean that the transaction had not been completed, opening the sale procedure to legal scrutiny.

The decision was influenced by a recent ruling by Brazil’s federal accounts tribunal (TCU) setting out the procedural safeguards that Petrobras should adopt in carrying out its multi-billion dollar divestment programme.

The TCU stated that the sale procedures should be competitive and publicised adequately, in order to attract the best offers.

Petrobras accepted the TCU recommendations and the tribunal allowed some of the most advanced transactions to continue. Petrobras is selling assets as part of a debt de-leveraging process deemed crucial by the board of a company.

Judge Carvalho was not persuaded that the Carcara transaction should be allowed to continue, however.

He ruled that an asset sale on the scale of Carcara demanded a competitive process and accepted the union’s contention that the sale price was unacceptably low to be in the public interest.

He went further, suggesting that government plans to license contiguous areas meant it could be in the public interest for licensing authorities, rather than Petrobras to handle the sale, should the national oil company  proceed with the divestment.

The court documents showed that the judge even questioned whether it was acceptable for Petrobras to sell valuable assets at a time of economic crisis, referring to the company’s own problems and the low oil price.

Petrobras and Statoil are likely to appeal on questions of law, but any delay in overturning its effects could feasibly delay Brazil’s plans to auction production sharing rights on the northern section of Carcara or might delay Statoil’s own investment plans.

The Norwegian company is planning a drill stem test on Carcara later this year, and to drill a wildcat on another pre-salt prospect on BM-S-8.

In a Brazilian securities filing, Petrobras stated that the BM-S-8 divestment was concluded in November 2016, with the approval of regulatory authorities, and added that the $1.25 billion received in consideration so far has already contributed to the deleveraging of the company’s debt.

The statement added that Petobras will take “all appropriate legal steps to defend the interests of the company and its investors".

An earlier version of this story wrongly identified the judge in the case. The judge's name is Marcos Antonio Garapa de Carvalho.