M&A activity in Brazilian oil and gas industry heats up as 3R deal gains more interest

(Bloomberg) – The deals scene in Brazil’s oil patch is heating up after a second producer announced plans for a merger with 3R Petroleum Oleo e Gas SA, sending its shares soaring.

The board of offshore oil junior Enauta Participacoes SA has approved a proposal to merge with 3R, which has oil fields on land and off the coast of Brazil, the company said in a statement Tuesday. 3R already is considering a potential combination with PetroReconcavo SA, another Brazilian oil producer that has oil fields on land.

3R rose as much as 7.3% in Sao Paulo and is up 32% this year on the news that it is a takeover target. Meanwhile, Enauta fell as much as 6.4%, the most since August, while PetroReconcavo dropped as much as 7.5% in the biggest decline since last May.

3R said in a separate statement that it will take up to 30 days to review Enauta’s proposal and will temporarily suspended its efforts to combine with PetroReconcavo.

3R, Enauta and PetroReconcavo are part of a group of oil companies that were able to expand when previous management at state controlled Petroleo Brasileiro SA was selling assets to raise cash. Petrobras has reversed course under the Luiz Inacio Lula da Silva administration and is no longer selling oil fields, prompting these smaller companies to pursue their peers to continue expanding.

The Enauta deal is subject to approval by shareholders and regulatory approval. The company said its proposal would avoid carve-outs, while the PetroReconcavo proposal would not include 3R’s offshore assets.