Good proposal, wrong timing. In Bradesco BBI’s view, this explains the strong negative market reaction to Enauta (ENAT3) shares after the proposed merger with 3R Petroleum (RRRP3).
The bank anticipated that the shares would recover today, which is indeed the case. PetroReconcavo (RECV3) shares rise 3.51%, to R$21.81; those of 3R Petroleum (RRRP3) advanced 2.49%, to R$ 34.16, while those of Enauta gained 1.55%, to R$ 26.13 (at the maximum, it was R$ 26.71), for around 1:15 pm.
If Enauta’s proposal, with its current proportion, were presented at another time, it could be seen in a better light. Enauta currently operates the Atlanta and Oliva fields and the analysis considers that the merger with another company would be better received in the future.
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In relation to the performance presented yesterday by Enauta and 3R Petroleum, the “new company” would be worth less than the separate companies, a hypothesis refuted in the BBI analysis. Part of the distrust lies in the market’s uncertainty about synergies between the companies.
“Although the synergies are not as obvious as 3R’s synergies with PetroReconcavo, they would not be negative. The market could also have priced 3R missing out on some ‘more obvious’ synergies over the potential merger with RECV; however, we do not believe that these were being significantly priced by the market at this stage”, considers the bank.
Among the possible synergies highlighted by BBI are the costs for operating in the offshore hub in fields already owned by the companies, such as Atlanta/Oliva, Parque das Conchas, Uruguá Tambaú, Papa Terra and Malombe. Furthermore, there is emphasis on commercial and tax synergies and lower capital costs.
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Merger would be positive, according to risk agencies
Both S&P Global and Fitch consider that the merger between the companies would be a positive event for both. S&P Global considers the transaction would result in a larger junior exploration and production operator. The new company would be more diverse and efficient.
“In our view, the merger would also allow for some economies of scale and dilution of fixed costs through the renegotiation of contracts for a larger company and investments in maintenance, repair and drilling campaigns. Furthermore, the potential new company would slightly diversify its operations, with assets in more basins and divided between production onshore It is offshore“, considers the risk agency.
In the note, the companies’ leverage was mentioned, considering that 3R and Enauta presented adjusted gross debt over earnings before interest, taxes, depreciation and amortization (EBITDA) of 5.0x and 3.9x. In the event of a merger, the leverage of the combined company would be around 2.5 to 3 times the ratio between gross debt and EBITDA.
Fitch has the same view and considers that 3R Petroleum’s credit profile would be strengthened. The combined company could benefit from greater scale and stronger financial indicators.
The group’s proven reserves would exceed 600 million barrels of oil equivalent (boe). The merger could also accelerate 3R’s deleveraging process and could reduce the oil company’s extraction cost for offshore production.
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