TotalEnergies SE, TTE Brazil announced that its co-venturers Petrobras PBR, QatarEnergy and PETRONAS Petróleo Brasil Ltda (“PPBL”) have signed a Production Sharing Contract (PSC) for the Agua Marinha offshore block in Brazil. The contract was awarded in the Open Acreage under Production Sharing Regime, the first cycle of which was held by Brazil’s National Petroleum Agency in December 2022.
Both TTE and Petrobras will have a 30% holding in the block, while QatarEnergy and PPBL will hold 20% each.
Benefits of the Contract
TotalEnergies’ major business lies in the offshore Brazil region, which has abundant low-cost, low-emission resources. The company’s exploration portfolio in this area is further strengthened by the aforementioned block and the two South Santos basin concessions acquired in 2022.
The PSC for Agua Marinha broadens TotalEnergies’ footprint in this prospective region of the pre-salt Campos Basin. The company also aims to explore the block and drill the Touro prospect.
Rationale Behind PSCs
PSCs outline the details regarding exploration and production of resources from a specified region and for a specific duration.
Oil production can be challenging because it requires substantial upfront investments that become difficult to recover if the well doesn't produce enough oil. However, a sharing contract can reduce the participating companies’ risk exposure by combining their resources and expertise. It also makes an oil production project more commercially viable. TotalEnergies, along with Petrobras, QatarEnergy and PPBL, makes a formidable team, without risking too much capital on one project.
A couple of other companies that are expanding their operations through PSCs are Chevron Corporation CVX and Equinor ASA EQNR.
Recently, Chevron finalized a production sharing agreement with Angola and the Democratic Republic of Congo to operate their shared offshore oil block. The deal might significantly impact the oil and gas industry in the central Africa region. It is also expected to unlock the offshore block’s potential.
Chevron’s long-term (three- to five-year) earnings growth rate is 14.3%. It delivered an average earnings surprise of 7.7% in the last four quarters.
Recently, Equinor, along with Exxon Mobil and Shell, entered into an agreement with the government of Tanzania to build a liquefied natural gas export facility. The deal includes the essential components of a host government and a production sharing agreement. The project, valued at around $42 billion by a top Tanzania government official, is anticipated to be constructed at the Lindi coast. It is expected to supply 15 million metric tons per year using gas from three deepwater blocks offshore Tanzania.
Equinor’s long-term earnings growth rate is 7.42%. It delivered an average earnings surprise of 11.41% in the last four quarters.
In the past three months, shares of TotalEnergies have lost 10% compared with the industry’s 16.2% decline.
Image Source: Zacks Investment Research
TotalEnergies currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report