Court halts Petrobras asset sales

A federal judge in Brazil granted injunction requests that effectively force state-controlled Petrobras to halt activity related to the sale of its onshore assets and fuel distribution subsidiary BR Distribudora (BR).

The court orders issued yesterday stem from petitions filed by oil labor unions.

One injunction halts Petrobras' plans to sell a controlling stake in BR, which operates Brazil's largest distribution network with around 7,500 service stations. Petrobras is in the early stages of the BR offer and plans to conclude the sale early next year.

A second injunction covers onshore basins situated in five states where Petrobras is looking to unload more than 100 exploration and production assets.

The Sergipe and Alagoas oil workers union has filed multiple claims aimed at blocking many of the assets Petrobras is looking to sell or has already agreed to sell under its $15.1bn 2015-16 divestment plan.

The unions contend that Petrobras is accepting offers below asset value because it is not engaging in public tenders, a claim the company has rebutted with multiple third-party valuation reports.

Petrobras says it will appeal the decisions and that its tender process promotes competition and the best outcome for the company.

In November, another federal court decision forced Petrobras to halt negotiations with Australia's Karoon for 100pc of the shallow-water Bauna field in the Santos basin and 50pc of the deepwater Tartaruga Verde field in the Campos basin.

Among the injunction claims still pending are the sale of petrochemical and textile plants, which Petrobras is negotiating with Mexico's Alpek; LPG distribution subsidiary Liquigas, which Petrobras recently agreed to sell to Brazilian LPG distributor Ultragaz for around $818mn; and the NTS natural gas pipeline, which Petrobras has agreed to sell to a consortium led by Canadian asset management firm Brookfield for around $5bn.

Brazil's complex legal system and the robust opposition to Petrobras' divestment plans means finalization of deals the company has already agreed upon and those in process could be tied up in court battles for months. But they are unlikely to be reversed altogether.

Petrobras has concluded sales agreements valued at around $10bn so far this year, about $4bn short of its target for the year. The company plans to unload another $19.5bn in non-core assets through 2018, part of the company's plan to tame its almost $123bn debt load.