PRIO won an arbitration related to the Wahoo field, which will generate a relevant increase in its 1P reserves and daily production.
The arbitration had to do with a dispute between the oil company and the Indian company IBV, which is a partner of PRIO in Wahoo with 35.7% of the capital.
As IBV did not want to participate in the investments for the development of the deposit — which has reserves of 125 million barrels — PRIO activated a clause called ‘exclusive operation’.
This clause defines that, when one partner does not want to participate in the investments, the other can make the capex alone and keep 100% of the result.
IBV did not agree and filed the arbitration process, which was defined today with a favorable decision for PRIO.
In practice, this will allow PRIO to keep 100% of the reserves of this deposit, which should have an estimated daily production of 40 thousand barrels. Considering the price per barrel at US$75, this production should generate revenue for PRIO of US$1.1 billion per year, with around US$400 million of this coming from IBV’s portion.
A large part of this revenue should go directly to the company’s bottom line, as Wahoo has a very low production cost because its operation is connected to the Frade field FPSO.
PRIO made revenue of $2.6 billion last year.
In terms of 1P reserves, the arbitration gain adds 45 million barrels to PRIO’s proven reserves, which thus grow by 8% to 603 million barrels.
BTG calculates that the additional reserves increase the company’s fair value by R$6 per share, or 12% of yesterday’s closing value.
The stock is up about 3% today on the news. PRIO is worth R$46 billion on the stock market.
“The arbitration with IBV and the approval of the environmental license allowing Wahoo to begin operating have been the two main overhangs preventing the action from fully reflecting its fundamentals,” BTG wrote. “Resolving one of the problems should lead to a positive market reaction.”
Pedro Arbex