Petrobras Confirms Galp Talks

Petrobras and Eni have confirmed talks over a potential sale of the Italian energy giant’s stake in Galp. Rumors had surfaced that Petrobras offered EUR3.5bn for Eni’s piece of in the Portuguese oil and gas company. This is significantly less than the up to EUR4.7bn Eni was last week reported seeking for the asset. According to Lucas Brendler, equity analyst with Banco Geracao Futuro de Investimentos, an investment in Galp is attractive to Petrobras as an easy way to gain access to oil fields outside Brazil, in addition to expanding its position among pre-salt reserves off the coast. Galp holds 10% of the offshore Tupi oil fields, in which Petrobras has a 65% stake. Acquiring a stake in the company would recapture some of Petrobras’ participation in the field. Brendler says the two sides may be staking out positions ahead of an eventual compromise on price. However, the cost of a deal might include more than just the initial price tag, analysts say. Galp may need further capex to develop its pre-salt reserves, according to Andres Kikuchi, equity analyst at Link in Brazil. That could substantially increase the total cost of such a deal for Petrobras, though the return on investment could still be attractive, he says. Brendler says Petrobras has appetite for such a deal, though reaching an agreement will depend on Eni. Galp had been trading around a $12bn market cap even before the recent confirmation of talks, so it may be difficult to pull of a deal that implies a lower valuation. Eni acquired its stake in 2000. A lock-up period with shareholders expired at the end of 2010. It is understood that none of the parties has yet retained an advisor. A Galp spokesman declines to comment.