Maersk Oil and Gas has been forced to write down assets in Brazil by US $1.7 billion to just $600 million, with its assets there now believed to be at the lower end of earlier expectations.
Back in July 2011 the Danish player paid SK Energy a hefty $2.4 billion for equity in three offshore blocks, which included the producing Polvo field and two other oil assets that have yet to be brought onstream. Now the operator admits its Brazilian ambitions have failed to live up to their earlier billing.
Early in July Maersk A/S, part of the AP Møller group, said it was revising its Latin American strategy and had decided bluntly that it “will no longer pursue growth or operatorship for its business in Brazil”.
Maersk has already sold its equity stake in the Polvo field to Brazilian independent HRT and it expects owners of two remaining assets, the deepwater Wahoo and Itaipu fields, which are said to contain “significant potential resources”, to present commercially viable development plans at a later stage.
“Based on its own assessments Maersk Oil now expects that these plans will result in a lower value than originally anticipated as the appraisal drilling[s] performed have come out at the low end of the original expectations, and additional adverse impacts from increased development costs and lower oil price also must be expected,” the company stated.
As a result Maersk says it will record an impairment to the book value of its Brazilian assets by $1.7 billion, reducing the value to $600 million, which will be included in the group’s second quarter results.
Nils S. Andersen, group CEO of the AP Møller group, commented candidly: “The SK Energy investment was made at a time when the outlook for the oil industry and oil prices were more positive than today, and we had growth ambitions for our Brazilian oil business. We have now adapted our strategy to the situation we see today, but it is of course clearly unsatisfactory that the oil volumes in the acquired fields Itaipu and Wahoo after appraisal drilling has proved to be in the low end of our original expectations. Going forward, this strategy adjustment and value impairment allows Maersk Oil to fully focus on its growth strategy.”
Maersk Oil’s CEO, Jakob Thomasen, added: “Whilst our ambitions for Brazil have only partly lived up to our expectations, Maersk Oil continues to develop an exciting portfolio of new projects around the world that will deliver more value and increased production through the decade.”
BP sold its 60% stake in Polvo to HRT in 2011 for $135 million in cash as part of its global portfolio optimisation program.
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