PetroRio (PRIO3) makes a ‘transformational buy’ and stocks close higher, while analysts await the next acquisition

The long-awaited announcement of PetroRio’s acquisition of Albacora Leste (3 . ago), With 90% of the field sold by Petrobras (PETR3;PETR4), last Wednesday (27).

The news came to cheer the market, although it had already been anticipated by investors since the companies had been in negotiations since November about it. With that, the shares started experiencing strong fluctuations in the session, reaching a high of 3.91% and a decline of 4.06%, but closed with a gain of 2.70% at R$26.28.

As Credit Suisse highlights in an analysis, the acquisition of Albacora Leste is a transformative deal for the company and a positive catalyst, being a very significant addition to PetroRio’s portfolio. In the first quarter of 2002, the field produced an average of 25.5 thousand barrels of oil per day. This represents more than three-quarters of PetroRio’s current production of 33,000 barrels per day.

The bank maintains an outperformance rating (performance above the market average) for the paper, a target price of R$30, or a potential rating of 17% with respect to the previous day’s close.

However, some issues that should move the market were highlighted with regard to the operations to be carried out by the company.

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First, there is the purchase price. PetroRio will pay US$2.2 billion to the state-owned company, of which US$293 million is upon signing of the deal; (ii) US$1.66 billion upon closing of the transaction and (iii) up to US$250 million relating to gains (additional earnings contingent upon Brent prices). Closing of the transaction remains conditional on the non-exercise of the right of the existing partner in the field, Repsol Sinopec Brasil, and the approval of the Administrative Council for Economic Defense (CAED) and the National Oil, Gas and Biofuels Agency. (ANP).

The advertised price was 10% higher than BBI’s estimate of US$2 billion, as a profit of US$300 million was not included.

Thus, the increase in the estimated value of Albacora Leste will decrease from $5 per share to $1.20 per share for Bradesco BBI. The bank’s current analyst target price for the share, which is R$45 (or a probability of up 76% compared to the previous day’s close), will drop a bit, to R$44, still a rise of 72%.

But BBI’s core issue also includes the acquisition of Albacora Oeste, which PetroRio is still negotiating.
and Petrobras. “We believe it should be fair to assume a similar adjustment to our acquisition price assumptions for this purpose, which would lower our value creation estimate from R$10 per share to $9 per share and lower the target price by R$43 per share. (High 68%)”, they highlight.

For the bank’s analysts, the key question is whether the acquisition price of Albacora will rise more sharply (versus the initial forecast of US$2 billion) due to the pre-salt potential that the field holds. Gains related to pre-salt reservoir ‘Forno’ may be related to more than US$300 million for Alpacora listi.

As for primogeniture, negotiations regarding primogeniture may extend for a few more months, according to analysts.

For BBI, the market could, in a way, include that the chances of PRIO signing Albacora have increased as well. “Although the rating was slightly higher than our initial estimate, the numbers were largely in line with what we expected after our discussions with the company’s management during the forum,” they assessed.

UBS BB asserts that PetroRio’s growth is dependent on acquisitions, and the Albacora Leste deal is a relevant performance catalyst for the investment thesis, with the other important catalyst specifically Albacora Oeste (or Albacora), also repeating the more difficult discussions.

At the moment, we have no vision for negotiations. We confirm that the alternative, which may be under discussion, is also to link some part to certain production levels or Brent prices in the future”, according to the assessment of the bank’s analysts.

The bank’s current target price of R$40 per share for PRIO3 (up 56%) also considers R$7 worth of a successful deal with Albacora Oeste.

Itaú BBA sees creation of R$8.50 per share for PetroRio with the acquisition the day before and also awaits news in the Albacora field.

The bank also cites a Reuters report that talks about challenges with another potential acquisition. Among the solutions proposed for the pakora are “returns” as well as a limited increase in value, the sources told the newspaper. One source said the two sides had discussed increasing the value in the range of 10% to 15%.

“While we believe the market may react negatively if PetroRio does not acquire the Albacora field, we note that the Albacora Leste acquisition in itself is positive for PetroRio – and will not necessarily require additional capital,” assesses the BBA. Along the same lines, Credit Suisse estimates that if there is a business that also includes Albacora, the company should need to raise additional capital of less than US$1.6 billion.

Both Albacora and Albacora Leste have an area of ​​about 960 square kilometers (square kilometres), they are located approximately 120 kilometers from the coast and the water depths in their wells range from 100 meters to 2,150 meters.

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