Are Exxon And Petrobras Forming A Strategic Partnership?

According to recent reports, ExxonMobil Corporation (NYSE:XOM) and Petroleo Brasileiro SA PZE or Petrobras Enegia Participaciones are holding discussions to form a strategic partnership to include multiple assets in Brazil and overseas in different segments of the industry.

Per sources, the deal is expected to give ExxonMobil access to oil fields and infrastructure in Brazil. Petrobras, on the other hand, could gain from ExxonMobil’s expertise in production, refining and distribution.

The Brazilian state-run oil giant, however, clarified in a statement, that there is no ongoing discussion for a strategic alliance with ExxonMobil. On the other hand, ExxonMobil refused to disclose any detail.

Since Brazil eased nationalist regulations and opened the market to more competition, international oil companies have been taking a closer look at the region.

The transaction is similar to the $2.2 billion deal with Total SA (NYSE:TOT) in December, wherein the company agreed to buy stakes in Brazilian oil fields and energy infrastructure to expand its presence in Latin America’s largest economy.

That agreement comprised stakes in the Iara and Lapa offshore prospects, and gave Petrobras the option to buy stake in a field in the Gulf of Mexico, Total had said at the time. Total also purchased 50% of two thermoelectric plants in the Bahia area and the right to use a regasification unit in the city.

Other European oil producers have also been motivated to purchase stakes in the deep-water discoveries that have been driving Brazil’s production growth. Statoil (OL:STL) ASA (NYSE:STO) acquired Petrobras’ stake in the Carcara find in 2016 in a $2.5 billion deal, and Royal Dutch Shell (LON:RDSa) Plc RDS.A expanded in the pre-salt region through its acquisition of BG Group Ltd.

In the recent months, Michel Temer’s government pulled back Petrobras’ exclusivity to operate in the pre-salt, and eased buy-in-Brazil requirements for platforms and equipment. Only one pre-salt field, the massive Libra discovery, has been auctioned in this decade. The auction was made under the terms that guaranteed Petroleo Brasileiro SA, as it is formally known, control of operations.

While single wells in the pre-salt region can produce over 40,000 barrels a day, among the most productive in the world, ExxonMobil earlier had a rare case of exploration failure in at a concession it abandoned in 2012.

ExxonMobil’s price chart, however, shows weakness. Shares of the company lost 3.9% in the last three months, while the Zacks categorized Oil & Gas – International Integrated industry registered an increase of 5.1% in the same time span.

ExxonMobil currently has a Zacks Rank #3 (Hold).

Looking for Ideas with Even Greater Upside?

Today's investment ideas are short-term, directly based on our proven 1 to 3 month indicator. In addition, I invite you to consider our long-term opportunities. These rare trades look to start fast with strong Zacks Ranks, but carry through with double and triple-digit profit potential. Starting now, you can look inside our home run, value, and stocks under $10 portfolios, plus more. Click here for a peek at this private information >>