Prio has just announced that it is buying 40% of the Peregrino field, paying $1.91 billion for the stake that belonged to the Chinese company Sinochem.
The transaction will increase Prio’s daily production by 40%, adding 36,000 barrels per day to the 85,000 barrels the company currently produces.
The company’s 1P reserves will increase by 20%. Prio currently has reserves of 600 million barrels, and the acquisition adds another 135 million. The field is estimated to be abandoned around 2040.
Equinor – owner of the other 60% of the field – has 30 days to exercise its pre-emption right, which Prio considers unlikely.
CEO Roberto Monteiro told Brazil Journal that the main synergy of the transaction lies in the marketing of barrels.
“The barrels from this field are currently sold in batches of 650,000 barrels, and loaded onto ships with a capacity to carry 1 million barrels. So, it ends up carrying the oil with some idleness,” said Roberto. “With the acquisition, we will fill the ships with the remaining 350,000 barrels from our other fields, optimizing freight costs.”
Prio expects this optimization to generate a freight gain of about $4, with the barrel being sold at a discount of $12 to $10.5 compared to Brent.
The Peregrino field is adjacent to Tubarão Martelo and Polvo, Prio’s two shallow water fields. However, since the company will not be the operator of the asset – whose control belongs to Equinor – it will not be able to extract operational synergies.
As part of the transaction, Prio will have the right to match, allowing it to match any offer Equinor receives for its stake in the future.
Prio will not have to pay the $1.91 billion upfront. The “effective date” of the transaction is January 1st of this year, which means that the company will deduct the cash generation Sinochem received from the asset until now from the final price.
The estimate is that this cash generation is around $300 million to $400 million, reducing the payment amount to between $1.7 billion and $1.6 billion.
The transaction multiple ended up at around $14 per barrel, slightly above the multiple that Prio itself negotiates on the stock exchange ($11). The company closed the day worth $38 billion on the stock exchange.
There is, however, a benefit not captured by the multiple. Prio is buying Sinochem’s subsidiary that operates Peregrino, which has accumulated losses of $650 million. The company can use this value to reduce its taxable base over the next few years.
The Prio CEO said the expected IRR for the project is 20% unlevered in dollars.
The transaction will increase Prio’s leverage from 0.4x EBITDA at the end of the second quarter to 1.2x EBITDA, but it is expected to return to near zero by the end of next year thanks to the cash flow from operations.
To finance the transaction, Prio raised credit lines totaling over $1 billion – with terms of two to three years – with BTG, Citi, Santander, and Itaú.
The company’s idea is to refinance this bridge loan with a debenture and a bond when market conditions are favorable.
In addition to Prio, several other companies participated in the Peregrino sale process, including Brava (the merger of 3R with Enauta), Karoon, KUFPEC (Kuwait’s state-owned company), the Norwegian BW Energy, and the private equity Fifth Oceans Group.
Prio was advised by Bank of America and Tauil & Chequer Advogados.
Sinochem was advised by Jefferies.
Source
Arwen Volkov, A graduate of the University of St. Gallen in Switzerland with a degree in International Finance, Arwen specializes in sustainable finance and green investments. She began her career at an investment bank in London, where she developed financing models for environmentally friendly projects. Known for her analytical and strategic thinking skills, Arwen is a sought-after financial consultant. In her spare time, she mentors fintech startups, contributing to their growth strategies. She is also a nature enthusiast and an amateur photographer.
