June 26, 2012 / 3:46 PM / 6 years ago

UPDATE 2-Brazil's Vale may keep natgas when it sells oil

* Vale needs natural gas to fuel Brazil projects

* Oil being dropped because of high capital cost

* Vale to keep YPF gas venture despite nationalization

* YPF-Vale Argentina natural gas may fuel potash mine

By Sabrina Lorenzi

MOJU, Brazil, June 26 (Reuters) - Vale, the world’s second-largest mining company, may keep its natural gas exploration assets if it succeeds in selling its Brazilian oil assets in order to guarantee energy supplies for its mines, a company official said on Tuesday.

The Rio de Janeiro-based mining company, the world’s largest iron ore producer, is selling its oil assets because they require too much capital to develop, Vania Somavilla, the company’s director of sustainability, told reporters at an event in Moju, in Brazil’s northern state of Para.

“Oil exploration is very capital intensive, our focus is natural gas,” she said. “We are reviewing this in a way that will allow us to keep our strategy to maintain investments in the natural gas area.”

In May, Vale’s Chief Financial Tito Martin told Reuters that Vale had decided to sell its oil assets as the cost of developing offshore oil reserves had soared.

Higher costs reduced the benefits of investing in oil as a hedge against swings in energy prices, the original reason Vale bought its oil stakes, he said.

Vale bought oil and gas exploration concessions at Brazilian auctions in 2005, 2007 and 2008 in partnership with companies such as Brazil’s Petrobras, Spain’s Repsol SA , Anglo-Dutch oil company Shell, Great Britain’s BG Group Plc. and Colombia’s Ecopetrol.

The assets are in the Espirito Santo, Santos and Para-Maranhao basins. Some of the stakes in Santos and Para-Maranhao are close to areas believed to hold large quantities of natural gas, according to data from Brazil’s petroleum regulator, the ANP.

Vale also plans to continue a natural gas partnership with Argentina’s YPF aimed at providing energy for Vale’s planned $4.6 billion Rio Colorado potash mine, Joao Coral, Vale’s global energy director, said at the same event.

The partnership will continue despite Argentina’s move to nationalize YPF by buying a controlling stake in the company from Repsol, a Vale partner in Brazil oil and gas ventures.

“We were a bit worried about the question of the nationalization of YPF but with all the work that we’ve seen and because of the efforts of the local (Argentine) government, operations continue,” Coral said.

Potash, a potassium-based mineral, is an important fertilizer. Brazil must import about 90 percent of its potash needs and the fertilizer is essential for production of such key exports as soybeans. Brazil is the world’s No. 2 soybean producer and exporter.

Much of Brazil’s potash is imported from as far away as Canada, Belarus and Jordan.

The gas partnership was set up before Argentina’s government moved to nationalize YPF by buying a controlling stake in the company owned by Spain’s Repsol.

Vale recently said it may reconsider building the Rio Colorado mine if it cannot get suitable terms in talks with various levels of the Argentine government.

Vale preferred shares, the company’s most-traded class of stock, rose 0.5 percent to 38.39 reais in Sao Paulo on Tuesday, on track for its first gain in four days.

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