Brazil Petrobras Confirms Talks With Biofuel Co. Brenco

Brazilian state-run energy giant Petroleo Brasileiro (PBR), or Petrobras, confirmed Monday that it was in talks with closely held ethanol producer Brenco.

“Petrobras would like to clarify that it’s in talks with the objective of identifying possible synergies in the production of biofuels. Until now, the talks are in a preliminary phase and no completed deal exists,” Petrobras said in a filing with stock regulators.

The statement confirmed earlier reports in local business daily Valor Economico, which identified Petrobras as a possible partner in Brenco’s current efforts to restructure the company’s finances. Brenco was studying a possible sale of a stake in the company to Petrobras, which has actively sought to ramp up its production of biofuels.

Brenco was also studying a merger with ETH Bioenergia or a cash injection from a foreign investment fund, Valor reported.

Brenco and other ethanol producers were hit hard by the global financial crisis, which undercut the companies’ access to financing.

Brenco, which was created in 2007, planned to crush 15 million metric tons of sugar cane annually. Two ethanol mills will enter operation this year, with another two mills currently under construction.

While funding has been tight, Brenco recently raised 380 million Brazilian reals ($208 million) in debentures and convertible notes. The company also recently raised BRL1.2 billion from BNDESPar, part of the Brazilian National Development Bank.

Petrobras has been ramping up its biofuel business in recent months, and the president of the company’s biofuels unit said in April that Petrobras would actively seek out partners in the sector. Petrobras is aiming for a 20% share of the domestic ethanol market.

About 80% of the biofuels unit’s 2009-2013 investment budget of $3.3 billion will be focused on ethanol projects, with the rest earmarked for biodiesel. Petrobras wants to export about 1.9 billion liters of ethanol a year by 2013, while injecting an additional 1.8 billion liters into the domestic market.