Wednesday, 22 May, 2024 / Edition 8

Greetings from a recovering Houston. Storms hit our area terribly last week, and many of our citizens are still without power. We are fortunate to be unaffected. Thank you to all who have sent best wishes.

Now, let's get back to work.

Shangyou Nie

Editor, Well Read

Petrobras Changes Leadership

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Magda Chambriard has been named CEO of Brazil's national oil company, Petrobras, after former leader Jean Paul Prates was ousted last week by President Luiz Inácio Lula da Silva.

Petrobras background:

• The Brazilian government holds 37 percent of Petrobras shares but more than half of the voting rights.

• The 71-year-old company has been a global offshore industry leader since the 1980s. Petrobras is producing 2.7 million boed, almost exclusively from deepwater fields. It made $4.8 billion in Q1 2024.

What happened to Prates?

• The 55-year old was sacked over alleged policy differences.

• Petrobras’ government-appointed Board of Directors, approved Prates’ immediate early termination on May 15.

• CFO Sergio Leite was also replaced by Carlos Neto, who became interim CFO.

Why was Prates fired?

• Lula’s cabinet reportedly wants lower fuel prices, smaller shareholder payouts, and a higher capital spending program to help boost the Brazilian economy. Prates wanted higher payouts for investors.

• Prates has clashed with the leftist Worker’s Party and Lula’s government, specifically Alexandre Silveira, the Mines and Energy Minister.

• Prates has also strongly promoted offshore wind and signed deals with Equinor to invest billions of dollars in the sector.

Who is Chambriard?

• The 67-year-old Chambriard is the former head of regulatory body Brazilian National Petroleum Agency (ANP) from 2012–2016. She has been working as a private consultant since 2016.

• Chambriard is a chemical engineer and previously worked for Petrobras from 1980–2012, before shifting to the ANP.

• Chambriard will be Petrobras’ 43rd CEO. The position has an average tenure of 1.7 years.

Her policy beliefs:

• She is reportedly a strong supporter for Brazil’s struggling ship building industry and in favor of expanding local refining capacity.

• She wants to invest more in traditional oil and gas and thinks offshore wind is too expensive. She is, however, a supporter for onshore wind and biofuels.

Market response:

• The market reacted very negatively to the leadership change, as investors saw it as a sign of unwelcome government interference and a likely decrease in shareholder returns.

• Listed on NYSE, Petrobras stock was down 9 percent the past week. Petrobras has a market cap of $96 billion.

What to watch:

• How long will Chambriard sit in the CEO chair? Prates is the fifth Petrobras CEO to be fired or resign since 2021.

• How will the constant battle between private investors and the Brazilian government play out at Petrobras in the future?

• What specific steps will Chambriard take to accelerate E&P business for Petrobras?

Crescent Energy to Acquire SilverBow Resources

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Crescent Energy announced plans to acquire SilverBow Resources for $2.1 billion, as part of an effort to grow its position in the Eagle Ford Basin in South Texas. This is the latest among a collection of similar industry consolidations, as companies try to enhance their U.S. unconventional portfolios.

Deal details:

• Both boards have approved the deal expected to close in Q3, pending approvals from shareholders and regulatory bodies.

• The combined company will retain the name Crescent Energy, with Crecent CEO David Rockecharlie continuing to lead.

• SilverBow shareholders have an option to receive either Cresent shares or cash. The cash option for the transaction is not to exceed $400 million.

• The combined company will have an estimated 2024 production of 250 kboed: 56 percent oil and 44 percent gas.

• After the acquisition, Crescent shareholders will own 69–79 percent of the combined company. SilverBow investors will own the remainder.

Context:

• Cresent has an enterprise value of $4 billion; SilverBow has an enterprise value of $2 billion.

• Crescent and SilverBow have used “acquire to grow” strategies to augment their Eagle Ford portfolios since 2019.

• According to Rockecharlie, the two companies have made 12 M&A deals in the Eagle Ford since 2021 for over $4 billion.

• Both companies were trading at a “notable discount” compared to their peers.

A previous suitor:

• On April 16, Kimmeridge withdrew its $2.1 billion merger proposal for SilverBow in a no-premium acquisition attempt.

• SilverBow and its largest shareholder Kimmeridge (12.9 percent) were involved in open dispute just before SilverBow’s annual shareholder meeting, which has now been adjourned.

• Kimmeridge also accused SilverBow of using a poison pill with a 15 percent equity ownership trigger for “self preservation” rather than maximizing shareholder return.

After the deal:

• SilverBow’s share price shot up 13 percent upon the news of the merger.

• The new Crescent will be the second largest operator in the Eagle Ford behind EOG.

• The combined company will have an enterprise value of $6 billion, with $3 billion in debt. It aims to reach $65–100 million synergy savings per year “over the coming years.”

• The new Crescent will have 70 percent of its estimated 2024 production from the Eagle Ford and 30 percent from the Rockies.

What to watch:

• Crescent CEO David Rockecharlie said the “Eagle Ford is the least consolidated basin,” implying more potential for acquisition deals in the future.

• Will Crescent be able to lower its high debt level post-merger?

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