Scotiabank, Citi Hired To Sell Vale's Oil, Gas Assets - Source
05/17/2012| 04:05pm US/Eastern
(Updates with analyst's comments from seventh paragraph)
Brazilian mining company Vale SA (VALE, VALE5.BR) has hired Bank of Nova Scotia (BNS) and Citigroup Inc. (C) to help sell its oil and gas exploration blocks in Brazil, according to a person familiar with the transaction.
Earlier, Bloomberg News cited one person as saying that Vale's oil exploration fields may be worth as much as $1 billion, without divulging the source. A source that Dow Jones Newswires spoke to declined to confirm the $1 billion figure, and wouldn't specify how much the blocks could be worth.
A spokeswoman for Vale said the company declined comment for this article. A spokesman for Citigroup declined comment for this article. A spokeswoman for Scotiabank couldn't be reached for comment.
Vale holds minority stakes in 18 oil and gas exploration blocks in the Santos, Espirito Santo, Para-Maranhao and Parnaiba basins. In 2007, it spent $1 billion in purchasing stakes in nine blocks in a government auction, later doubling its holdings via purchases from private companies.
In most of the blocks, Vale is a partner with state-controlled Petroleo Brasileiro SA (PBR, PETR4.BR), which may have preferential purchase rights if Vale sells its holdings. Vale officials have said the firm may keep some natural gas assets to use at its own operations.
Earlier this month, Vale's chief executive Murilo Ferreira said the company would make a decision on the possible sale of its oil and gas assets by the middle of this year.
"The sale isn't confirmed yet, but wouldn't surprise the market if it occurred," said Pedro Galdi, analyst with Sao Paulo-based broker SLW Corretora. "Vale will continue to have a growing focus on energy."
Vale has been investing since 2008 in production of biodiesel for use in its machinery and trains.
The sale would be a strategic decision taken by the board, along the lines of the company's recent decision to use rented vessels to transport its iron ore rather than itself being a major shipowner, according to Galdi.
Even with the sale of its oil and gas assets, Vale's size and scope means that it will continue to be a well-diversified company, comparable to its major mining competitors BHP Billiton plc (BHPB.LN), which also produces oil and Rio Tinto plc (>> Rio Tinto plc), which produces diamonds, Galdi said.
A sale of oil and gas assets is unlikely in itself to affect investor sentiment or hit share values, according to the SLW analyst. However, Vale's shares are currently taking a hit, along with other commodities producers, from growing risk aversion globally due to latest developments in the European debt crisis, Galdi said.
Vale traded at 35.02 Brazilian reais ($17.51) mid-afternoon in Sao Paulo, down 2.99% from Wednesday's close, against an overall fall of 2.81% on the Bovespa exchange.
-By Matthew Cowley and Diana Kinch, Dow Jones Newswires; +55 11 3544 7082; email@example.com; +55 21 2586 6086; firstname.lastname@example.org
--Rogerio Jelmayer in Sao Paulo and Angel Gonzalez in Houston contributed to this article.