HRT in talks to sell additional stake in offshore Namibia blocks
BY JEFF FICK
RIO DE JANEIRO-- HRT Participacoes em Petroleo is in talks to sell an additional stake in its blocks off the coast of Namibia, with the cash earmarked to fund drilling of a fourth deep-water well, HRT CEO Marcio Rocha Mello said in an interview.
HRT has curtailed spending and sold stakes in some of its exploration blocks over the past year after investors bailed out of the company's shares amid questions about whether HRT would be able to deliver concrete results. HRT ended 2012 with about $509 million in cash, which will climb slightly after the company finalized the sale of its aviation unit for about $75 million.
"Cash preservation is very important" Mr. Mello said, in explaining the company's decision to sell an additional stake in its Namibian blocks. "We need to share risk. We need to find a partner."
Negotiations are under way with several companies, and HRT is "very confident" it can reach a deal before the company completes drilling of its first well off the coast of the West African nation in about two months. Work on the first well, called Wingat, should start in "five or six days" Mr. Mello said.
HRT has enough cash to fund its investment plan "without any stress" for the next two years, the executive said. “In 2013, HRT will spend about $253 million to drill three wells in the Amazon's Solimoes Basin and up to four wells off the coast of Namibia” Mr. Mello said.
The focus on cash preservation also has HRT taking a unique approach to Brazil's coming 11th round auction of oil and natural gas exploration concessions, set for May. HRT is in talks with several companies about partnerships to participate in the auction, but "without using cash" Mr. Mello said.
HRT will instead trade its knowledge of Brazil's deep-water equatorial margin that will be featured in the bidding round for a share of the exploration blocks, Mr. Mello said. "HRT was built by people who have the largest, deepest knowledge of Brazil's equatorial margin" the executive added.
Earlier, the company announced that local regulators had approved an extension to the company's exploration license for 10 blocks in the Solimoes Basin. HRT operates 21 blocks in the basin with a 55% stake, while TNK-Brasil holds the remaining 45%.
The extension will allow HRT more time to explore the rugged area after efforts were impeded in 2011 and 2012 by bad weather, Mr. Mello said. HRT was only able to drill two wells in one of the 10 blocks, with the wells both showing natural gas flows that were among the best ever found onshore Brazil, the executive noted.
"The blocks are unique and open a completely new frontier" in Brazil's Amazon region, Mr. Mello said. The blocks are also about 10 times as large as onshore blocks that will be sold in the 11th-round auction, the executive said.
While the blocks have potential to hold large discoveries, a strategy for turning the resources trapped underground into cash is still being hashed out. HRT, TNK-Brasil and Petrobras are making progress on joint studies to monetize the natural gas discoveries made in the Solimoes Basin, Mr. Mello said.
Engineering studies on nine potential alternatives are under way, with more details likely in about "one or two months" Mr. Mello said. A decision on which strategy to follow, however, is unlikely before the end of June. Natural gas pipelines, on-site fertilizer plants, gas-to-liquids plants and natural-gas-fired power plants are among the alternatives under consideration, Mr. Mello said.
The monetization strategy shows that "HRT wants to perform" and generate results after earlier criticism by market analysts and investors, Mr. Mello said. The executive noted that start-up companies have had a rough time recently, not only in Brazil but throughout the world.
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