With no acquisition in sight and with Brent falling, juniors focus on ramping up production

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The new director of Petrobras (PETR4) provided new strategic guidelines in relation to the divestment policy of the state company, which drastically changed the plans of the junior oilsas they are called PRIO in the market (PRIO3), 3R Oil (PVP3), Petrorencave (RECV3) and Enauta (ENAT3).

In addition to having fewer opportunities for new acquisitions, companies also suffered, at the beginning of the year, the impacts of the devaluation of oil prices in the international market, as well as the slump generated by government taxes on exports of raw materials.

At least, by all indications, the export tax was a lesser evil, one that shouldn’t be extended much beyond June. However, the prospect of a fall in the price of a Brent type barrel has raised an alert for the sector, since its income ends up being affected.

The US Department of Energy, for example, revised its forecast for the average price of a barrel of Brent oil in 2023, from $85 to $79. Meanwhile, for next year the projection was lowered from US$81 to US$74.

Given this scenario and after the harvest of first quarter results, Goldman Sachs updated its estimates for PRIO, 3R Petroleum and Petroreconcavo, reducing the target price for all of them. The bank claimed responsibility for the downward macroeconomic scenario, mainly due to lower Brent prices.

Thus, for 3R Petroleum, the recommendation continued to be buy, but with a target price of BRL 40.50, against BRL 57.49 previously. For PetroRecôncavo, the recommendation is neutral, with a target price of R$ 23.30 (from R$ 26.20). For Prío, the recommendation is to buy, with a target price of BRL 55.90 (previously it was BRL 59.80).

Where are the junior oil companies going?

With all these complications, what the companies indicated as a strategy, from now on, is to reduce the appetite for acquisitions, resorting to internal efficiency gains.

A PRIO (PRIO3) stressed that it will focus on organic growth after taking full control of its largest asset at the beginning of the year, Albacora Leste, acquired from Petrobras.

In addition, Petroreconcavo (RECV3), which has already taken the completion of the purchase of the Bahía Terra hub from the state company off the radar, wants to “look more inward”, gaining efficiency and increasing production.

Meanwhile, Enauta (ENAT3) is preparing to operate its definitive field system in the Santos Basin in 2024.

Finally, 3R Oil (PVP3) still has a trump card: it will be the last junior oil company to sign a contract for the acquisition of an oil field with Petrobras (PETR4).

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inside work to do

If acquisition opportunities are lacking, internal challenges remain, and they are not few. According to XP, despite macroeconomic challenges and falling Brent prices, companies posted good results in 1Q23.

But he highlighted the impacts of one-off effects on the operations of oil companies, especially in relation to newly acquired assets, demonstrating the dimension of the challenges of integrating new operations.

“While M&A opportunities are still being seen, companies appear to be more focused on operational efficiencies and organic production growth,” XP said.

“Field development plans are increasingly demanding with management and proper planning is essential to avoid negative impacts on results,” he added.

protecting you

PRIO points out in its 1Q23 report that the best protection against Brent volatility is the reduction of its lifting cost, What are the costs of extracting oil? This item is an obsession in the sector and, in the case of junior oil companies, something crucial, since their fields are in the stage of increasing production.

The same lifting cost de PRIO suffered a setback between the last quarter of last year and the first of this year: the index jumped from US$8.6 to US$9.5 a barrel, all due to the addition of Albacora Leste, whose operating costs began earlier above the current fields.

According to Roberto Monteiro, general director of PRIO, “the story (of Albacora Leste) is one of improving operational efficiency.” On the 1Q23 earnings conference call, the executive also highlighted the company’s next steps with a focus on the revitalization plan for Campo de Frade this quarter and Campo de Wahoo in 3Q23.

Monteiro, although he mentioned that PRIO is still looking for acquisition opportunities, rules out having a transformational process of this type in the company. For him, “organic growth is increasingly important for the company.”

Joy for some and sadness for others.

3R Oil (RRRP3), after obtaining the last license from Ibama for the Polo Potiguarwhich was the final condition to close the purchase of the asset from Petrobras, must finally sign the closure with the state company in the coming days.

Rodrigo Pizzarro, CFO of 3R, even gave the probable start date of operations at the Potiguar Complex in the 1Q23 results conference call: June 1.

Such anxiety on the part of the junior oil company, after months of agony over whether or not to close the deal due to uncertainties with the divestment policy of the new Petrobras administration, has a strong cause: the asset will represent 45% of the company property. total oil production.

3R even commented in the last presentation of the balance the concentration of efforts of the company to take over the complex with 22 oil fields, which, in addition to mobilizing personnel, included the acquisition by 3R of an inventory of tools and equipment vital for the good continuity of operation

Joy for 3R, frustration for Petroreconcavo (RECV3), which was unable to close the purchase of Polo Bahia Terra with Petrobras.

The topic cooled so much that it was removed from the agenda of the company’s latest earnings conference call, while previous conference calls reserved ample space for this discussion.

The junior oil company still found itself in the first quarter of the year between the worsening of oil prices and the extraordinary costs with the interdiction of the Bahia Terra Pole under Petrobras control, hindering the flow and commercialization of its gas production, since it uses the road infrastructure shared with the state.

Dialogue with Petrobras

The general director of Petroreconcavo, in the midst of the lack of definition of Petrobras’ policy for the sector, believes it is necessary for the junior oil companies to dialogue with the state company on issues related to the oil and gas industry.

Décio Oddone, CEO of Enauta, affirmed once again that the definitive system in the Atlanta Field, in the Santos Basin, will be completed in 2024 and will place the company at another level of oil production.

“The most important thing is that with each passing quarter we are getting closer to delivering the final system to have more volume (of oil in the field) in Atlanta,” he said.

Finally, the executive says that the company continues to look for acquisition opportunities in Brazil and abroad, but did not provide details.

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