OREANDA-NEWS. Brazil's state-controlled Petrobras has launched exclusive negotiations with Argentinian firm Pampa Energia for the sale of its Argentina subsidiary.

An agreement between the two companies establishes an initial 30-day period of exclusivity, with an option for a 30-day extension, Petrobras said.

Pampa confirmed that talks are underway.

The Argentina subsidiary, estimated by market participants to be worth $1.2bn-1.3bn, is one of the larger assets that Petrobras plans to sell under its $14bn divestiture campaign this year.

Other companies that Petrobras had invited last year to present offers for the Argentinian assets include Argentina?s state-controlled YPF, Argentinian independents Pluspetrol and Tecpetrol, and BP-controlled Pan American Energy. YPF said in October 2015 that it had withdrawn from the bidding because Petrobras? price expectations were too high.

Discussions between Pampa and Petrobras began in December, according to an executive familiar with the talks.

Petrobras holds 67pc in the Argentinian subsidiary. The rest is held by investors.

The company's Argentinian assets include some 30 upstream contracts, a network of service stations, the 30,500 b/d Bahia Blanca refinery in Buenos Aires province, a petrochemical plant in Santa Fe province, a majority stake in natural gas transporter TGS and a 34pc stake in LPG fractionator Mega, among others. In the power sector, Petrobras Argentina operates the 825MW Genelba combined cycle plant in Buenos Aires province and the 245MW Pichi Picun Leufu hydroelectric plant in Neuquen province, and holds minority stakes in thermal plants.

Petrobras has already started to scale back its presence in Argentina. In 2015, the company sold stakes in 26 oil and gas blocks in Santa Cruz province for $101mn to local firm Corporaci?n Am?rica. In 2010, another local firm, Oil Combustibles, bought Petrobras' 40,000 b/d San Lorenzo refinery and retail network in a $110mn deal.

The market-oriented policies of Argentina's new president Mauricio Macri have provided a boost to Pampa, owner of the country's largest electricity distributor Edenor. Last month the government increased wholesale and retail electricity tariffs after more than a decade of largely frozen rates.

Pampa shareholders recently approved a $500mn bond sale, which could be used to finance the purchase of the Petrobras assets in Argentina. A debt issuance could benefit from advanced government efforts to resolve longstanding litigation in New York with creditors who have refused to restructure defaulted debt. A deal would allow Argentina to return the international capital markets for the first time since its 2001 default on almost $100bn.

Pampa produces 2.2mn m3/d (77.7mn ft3/d) of gas, mostly through joint ventures with Petrobras and YPF in Neuquen province, soaring 250pc from 631,000 m3/d in 2014.

Pampa also holds a minority stake in TGS. In the power sector, the company has 2,217MW of generating capacity and controls 90pc of the country's high-voltage transmission lines through Transener.