Upstream M&A activity in South America slowed last year, with a deal value slightly above $790 million – excluding Chevron's acquisition of Hess, which included a South American portfolio estimated to be worth around $42.5 billion. This was a substantial drop from the $7.6 billion worth of deals recorded in 2022 (excluding the Brazilian Surplus Volume rounds). The slump in deal value was largely due to lower activity in Brazil, which has historically served as an M&A hotspot in the region. The Brazilian slowdown was in turn a result of Petrobras' decision early last year to halt divestments, effectively throttling the country’s main source of upstream transactions (Figure 1).

The dominant role of Petrobras’ divestiture program market is clearly visible when we break down South America’s annual deal value. Since 2019, the region’s combined deal value has totaled slightly over $29 billion, excluding certain outliers including the Russian government's acquisition of Rosneft's Venezuelan assets to protect it from sanctions, the restructuring of state-owned PetroEcuador, and Chevron's acquisition of Hess' Guyanese portfolio. Of this $29 billion, Brazil alone accounted for 70%, or over $20 billion -- and of this $20 billion, divestitures by Petrobras made up three-quarters, or nearly $15.2 billion.

These divestments have created opportunities for regional independents and foreign players, including majors, national oil companies (outside of Brazil), and international oil companies, allowing them to boost their market share in Brazil's upstream sector. Regional independents benefitted the most, having acquired nearly 58% (around $9 billion) of the assets sold by Petrobras in terms of deal value since 2019, followed by NOCs outside of Brazil (34% or $5.1 billion), and majors and IOCs (9% or $1.3 billion).

In terms of production, the four buyer segments collectively account for an estimated 36% of Brazil's total production this year, up from just 17% in 2015 when Petrobras started its divestment plan, according to Rystad Energy data.

Petrobras currently delivers nearly 64% of total production in Brazil and 88% of total operated production in the country. However, these shares are expected to decline despite an increase in Petrobras’ absolute production, as the contribution climbs from majors Shell and TotalEnergies and other large players like Equinor and CNOOC. Large projects such as Equinor’s Bacalhau and Raia Manta are expected to come online this decade and will boost the operated Brazilian production by INOCs from 89,000 barrels of oil equivalent per day (boepd) in 2023 to 582,000 boepd in 2030 (Figure 2).

Meanwhile, Brazilian independent companies are still looking to solidify their place in the market alongside Petrobras and international giants like Shell and Equinor. While these independents’ contribution is expected to rise, the growth will be moderate, with operated production rising from 272,000 boepd last year to 359,000 boepd at the end of this decade. This translates to a compound average growth rate of 4%. 

New consolidation wave
The lack of growth opportunities since Petrobras last year virtually halted divestments has set the Brazilian E&P independents on track for a potential consolidation as they seek to replenish reserves and reduce costs.

Enauta, which historically has relied less on acquisitions than its peers, has diversified its portfolio with three deals since December 2023, potentially making it a more attractive acquisition target. The company acquired two packages in December 2023, including Petrobras' 100% stake in the Urugua and Tambua fields for a total consideration of $35 million ($25 million in contingent payments). Additionally, Enauta picked up a 23% stake in Parque das Conchas from Qatar Energy for $150 million. These two additions lifted its production by more than 15,000 boepd. Last month, Enauta sold a 20% stake in the Atlanta and Oliva fields for $301.7 million to Westlawn Group, strengthening its balance sheet and mitigating risk for a major upcoming project.

With these recent transactions under its belt, Enauta on 1 April proposed a merger with 3R Petroleum and later signed a memorandum of understanding with 3R regarding a potential merger, backed by 3R  minority shareholder Maha Energy. The proposed deal make 3R Petroleum the acquiring company, getting a 53% stake in the combined entity. A deal could have an enterprise value of over $1.5 billion, based on Enauta’s closing share price on the day before the proposal.

The Enauta-3R proposal prompted a pause in an earlier proposed deal between 3R and PetroReconcavo, instigated by Maha Energy after the Swedish company bought its minority stake in 3R in January. This deal would have seen 3R sell its onshore assets to PetroReconcavo in exchange for stock, leaving 3R to focus on its offshore portfolio. This deal is now on hold pending the newer proposal involving Enauta, which will position 3R for growth without any carve-outs or restructuring requirements.

In addition to the various strategic moves by independent E&P players, Seacrest Petroleo, which has built its majority portfolio with Petrobras’ divested assets, has reportedly hired Goldman Sachs to help explore a potential sale. The company produced an average of 8,300 boepd in 2023, which is set to rise to as much as 12,500 boepd in 2024 with an output exit rate of up to 17,000 boepd at the end of this year, according to Seacrest.

With Seacrest’s portfolio on the market, four of the top 10 Brazilian independents are currently considering various deals, indicating an impending M&A wave in the country’s upstream sector. Other independents may also be eyeing acquisition opportunities, including Eneva, which previously participated in bids for Petrobras' divestments of concessions in the Solimoes Basin in 2020 and the Bahia Terra Cluster in 2022.

Beyond Brazil, several other South American countries also have attractive packages on the market that could spur plenty of M&A activity ahead, including hotspots Suriname and Guyana, Argentina’s shale play, and Trinidad & Tobago.

Authors: 

Palash Ravi

Senior Analyst, Upstream Research
palash.ravi@rystadenergy.com

Flavio Menten

Analyst, E&P Research
flavio.menten@rystadenergy.com

Atul Raina

Vice President, Upstream Research
atul.raina@rystadenergy.com

Daniel Leppert

Senior Vice President, Research Director for Latin America
daniel.leppert@rystadenergy.com

(The data and/or forecasts in this column are Rystad Energy’s, and the opinions are of the authors.)