Petrobras shares rise on report Brazil government to pay oil firm $14 billion

FILE PHOTO: The logo of Brazil's state-run oil company Petrobras is pictured at a gas station in Natal
FILE PHOTO: The logo of Brazil’s state-run oil company Petrobras is pictured next to a national flag at a gas station in Natal, Brazil November 19, 2018. REUTERS/Paulo Whitaker

January 7, 2019

SAO PAULO (Reuters) – Common shares in state-controlled oil company Petroleo Brasileiro SA rose almost 4 percent on Monday after a newspaper said the government had settled on the amount it will pay the firm to settle a dispute over an oil-producing zone known as the transfer-of-rights area.

Brazilian newspaper Valor Economico said the government had planned to pay Petrobras, as the company is known, $14 billion. That value had been settled on last year, and members of former President Michel Temer’s administration had communicated the figure to members of the administration of President Jair Bolsonaro, who took office on Jan. 1, the report said, without saying how it obtained the information.

Petrobras and the Economy Ministry did not immediately reply to requests for comment.

Settling on a figure would be a major step forward in the long-running dispute, which in turn would help Petrobras cut its sizeable net debt, which stood at $73 billion as of the third quarter.

At times during negotiations, Petrobras has claimed that it is owed as much as $30 billion, while parts of the government claimed Petrobras owed the state money.

On Wednesday, Mines and Energy Minister Bento Albuquerque said he expected the dispute to be resolved within 100 days, and that Petrobras was the creditor in the dispute. The amount Petrobras was owed and the form of payment was still under discussion, he added.

Brazil-listed common shares in Petrobras climbed as much as 5.5 percent following the news but later pared the gain to 3.8 percent. American depositary receipts for Petrobras shares also climbed 3.8 percent.

A dispute over the oil in question dates back to 2010, when the Brazilian government granted Petrobras the right to extract 5 billion barrels of oil and gas in the offshore Santos Basin. The government received additional shares in Petrobras in return, based on oil prices at the time.

But volume of oil is now estimated to be much larger, and the cash-strapped government wants to sell the rights to extract the extra oil in the area. The choice reserves cannot be auctioned until the government and Petrobras resolve a dispute over the 2010 transaction.

Among other things, the contract stipulated that costs would be reviewed after the area was declared commercially viable in 2014, which has led to years of sparring as oil prices have fluctuated.

(Reporting by Tatiana Bautzer and Gram Slattery; editing by Grant McCool, Susan Thomas and Dan Grebler)

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