Petrobras Enlists Citi to Sell Houston-Area Refinery

By Ben Lefebvre and Ryan Dezember

Petroleo Brasileiro SA has enlisted Citigroup Inc. to shop its Houston-area refinery as the Brazilian state-run oil company continues to shed assets to help fund offshore drilling back home, according people with knowledge of the sale effort.

A sale of the 100,000-barrel-a-day refinery will likely result in a loss for the company, known as Petrobras, which paid nearly $1.2 billion for the facility, one of these people said.

Petrobras acquired a 50% stake in the refinery in 2006, paying a subsidiary of Belgian commodities trader Transcor Astra Group S.A. about $360 million. Then, after a lengthy legal battle with its partner, Petrobras acquired the 50% it didn’t already own in July. Petrobras paid $820.5 million, with $466 million set as the value of the property and the remainder covering legal fees and interest expenses.

The price has prompted Brazilian lawmakers to question the purchase, according to local media outlets, which last week reported that the Brazilian Congress would call on a Petrobras executive to answer questions about the deal. On Tuesday a spokeswoman said the company was “unaware of any request to appear before Brazil’s Congress at this time.”

Still, the refinery could hold allure to some, primarily because of its location, said Morningstar analyst Allen Good.

Located it in Pasadena, Texas, just south of Houston, it is well positioned to receive the growing crude supplies coming out of shale formations in south and west Texas, Mr. Good said. And its location on the Houston Ship Channel connects it to important export markets, he said.

More than half of the Pasadena refinery’s output is gasoline, a fuel for which demand is rising in Latin American countries.

Petrobras is in the early stages of an effort to divest some $15 billion of assets before 2017 as it looks to raise money to fund development of its prolific yet expensive-to-drill fields deep off Brazil’s coast. Petrobras has said it plans to spend $237 billion developing those so-called subsalt fields.

Late Monday, Petrobras announced the sale of a 40% stake in an offshore block in Brazil to oil producer OGX Petroleo e Gas Participacoes for $270 million. In the U.S., Petrobras has hired Morgan Stanley to help it find a buyer for a stake in its Gulf of Mexico fields, which could bring in up to $4 billion, The Wall Street Journal earlier reported.

Meanwhile, the mandate to sell the refinery marks another success for Citigroup’s energy bankers, who are having a banner year in what has been the best year on record for oil and gas mergers and acquisitions by dollar volume.

Citigroup leads other financial institutions, advising on $101.3 billion worth of announced oil and gas deals this year, according to data provider Dealogic. In all, there have been nearly $296 billion worth such deals, excluding spin-offs and repurchases, meaning Citi has had a hand in roughly 31% of the year’s global oil and gas transactions, according to Dealogic.