October 31, 2011 / 6:22 PM / 8 years ago

Brazil's HRT seals $1 billion deal with TNK-BP

(Reuters) - HRT HRTP3.SA agreed to sell a 45 percent stake in 21 Amazon oil blocks to Anglo-Russian TNK-BP TNBP.MM for $1 billion, the Brazilian start-up company said on Monday.

The deal represents a step forward in TNK-BP’s expansion beyond Russia, where the state has curbed private company access to promising offshore areas. It also accelerates the rise of HRT in Brazil, where state-run Petrobras (PETR4.SA) still dominates the oil industry.

The agreement may bring renewed attention to oil reserves in Brazil’s Amazon at a time when the spotlight has been on the deep-water offshore region known as the subsalt. The subsalt region is believed to hold more than 50 billion barrels of crude, enough to satisfy all the world’s needs for more than 1-1/2 years.

“For HRT it’s a very good sign, because it puts it in another league of companies and shows their capacity to negotiate,” said independent Brazil energy analyst Francois Moreau, who is also a former oil industry executive.

HRT said in a statement it will remain operator of the blocks, located in an area known as the Solimoes Basin. A company spokeswoman later said TNK-BP would have the right to become operator and to buy another 10 percent stake 30 months after approval of the initial transaction by Brazil energy regulator ANP. HRT would receive payment over two years.

TNK-BP insisted on the option to become operator down the road because although HRT has greater knowledge of exploration in the Solimoes Basin, TNK-BP has more experience with assets in production.

“HRT is clearly more capable of operating the asset today, but once TNK-BP gets familiarized with Brazil and the Solimoes Basin and the project moves into production phase, TNK-BP might be better qualified,” said one source familiar with the talks, who asked not to be identified.

HRT would have the right to receive additional payments of up to $5 billion over 10 years. The payments would include compensation for past expenses and payment of 73 cents per barrel of proven and probable reserves above 500 million barrels of oil equivalent.

Run by geologist Marcio Mello, HRT raised $1.5 billion in a 2010 stock offering, wooing investors with prospects in Brazil and Namibia.

TNK-BP, a 50-50 joint venture of BP Plc (BP.L) and four Soviet-born billionaires, hopes the partnership with HRT will lead to bigger projects in Brazil and elsewhere in South America.

“TNK-BP wouldn’t have come to Brazil for one exploration project only,” said Stan Polovets, chief executive of AAR, BP’s partner in TNK-BP.

“The company is going to develop a presence and relationships in Brazil, and it obviously will make sense for TNK-BP to eventually leverage that presence into future opportunities,” he said, adding that it would likely take several years because TNK-BP is focused on the HRT partnership.

Environmentally oil production in the Amazon remains low on the list of perceived threats, compared with cattle ranching and soy farming, which are key causes of deforestation.

LOGISTICS CHALLENGE

The biggest challenge would be transporting the natural gas produced in the isolated area via a pipeline Petrobras built for its own Amazon project.

While river tankers can carry the high-quality light oil to be produced there, HRT’s ability to move the natural gas would depend almost entirely on Petrobras, Moreau said.

“Clearly bringing partners will let them negotiate with Petrobras in a different context,” he said. “They have other bargaining chips to put on the table, and I’m sure this is the reason they are bringing them in.”

Twenty-five years ago, Petrobras made the Urucu oil and gas discovery in the Amazon and pioneered efforts to operate in the rain forest with limited environmental impact.

But the area has been largely overlooked since then as the company has focused on offshore operations that now account for the vast majority of its oil production.

Petrobras’ 2007 deep-water discoveries in the subsalt region opened a new frontier for oil exploration and drew the attention of oil companies around the world.

But new projects there are on hold until Brazilian politicians can agree on a plan to distribute oil royalties among different states.

TNK-BP, which pumped 1.5 million barrels per day of crude oil in September and accounts for a fifth of BP’s equity production, wants to boost the international share of its output over the next 30 years.

Growth is crucial for TNK-BP outside Russia, where its portfolio of reserves is dominated by aging fields. Russia’s government has given preference to state-controlled Rosneft (ROSN.MM) for development of top offshore areas.

Reporting by Brian Ellsworth in Rio de Janeiro; Additional reporting by Sabrina Lorenzi; Editing by Gerald E. McCormick, Lisa Von Ahn and Steve Orlofsky

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