Shell (LSE: SHEL) to expand stake in Brazil’s Gato do Mato through swap With TotalEnergies (EPA: TTE)

Why Is Shell Increasing Its Working Interest in Gato do Mato?

Shell plc (LSE: SHEL), through its subsidiary Shell Brasil Petróleo Ltda., has signed a definitive agreement with TotalEnergies SE (EPA: TTE) to increase its stake in the Gato do Mato deepwater oil project, located in the prolific pre-salt Santos Basin offshore Brazil. In this asset swap, Shell will raise its working interest in Gato do Mato from 50% to 70%, consolidating its operator position. In exchange, Shell will divest 3% of its holding in the Lapa field—also in the Santos Basin—bringing its interest in that field down to 27%.

This asset exchange, announced on June 4, 2025, is a strategic reconfiguration aimed at optimizing capital deployment across Shell’s upstream deepwater portfolio. The transaction remains subject to regulatory approvals from Brazil’s National Petroleum Agency (ANP) and other customary closing conditions, but once finalized, it will significantly reshape the operator landscape in both fields.

Following the swap, Gato do Mato will be 70% owned and operated by Shell, with Colombian oil major Ecopetrol S.A. retaining its 30% stake. Meanwhile, the Lapa field will see TotalEnergies increase its operator stake from 45% to 48%, joined by Shell (27%) and Repsol Sinopec Brasil (25%).

What Makes Gato do Mato an Attractive Bet for Shell?

Gato do Mato has emerged as one of the most promising oil prospects in Brazil’s pre-salt cluster. Located within the BM-S-54 Concession Agreement and the Gato do Mato South Production Sharing Contract (PSC), the project is co-managed by Shell, Ecopetrol, and—until now—TotalEnergies, with Pré-Sal Petróleo S.A. (PPSA) acting as the contract manager for the PSC component.

In March 2025, Shell and partners reached a Final Investment Decision (FID) on the Gato do Mato development, a long-anticipated milestone after nearly a decade of evaluation. The project is expected to tap into high-quality, low-carbon oil reserves that align with Shell’s goal of producing lower-emission barrels with high-margin returns. Gato do Mato is also strategically positioned to benefit from nearby infrastructure and logistics channels, which reduce capex and accelerate timelines to first oil.

Industry analysts have noted that Shell’s increased stake provides greater operational control and reserve booking flexibility, potentially improving upstream earnings in the medium term. By assuming majority ownership in a newly sanctioned project, Shell is betting on its technical leadership in deepwater drilling and floating production systems—areas where it holds decades of global experience, particularly in Brazil.

Why Is TotalEnergies Opting to Double Down on Lapa?

TotalEnergies’ decision to trade out of a development-phase asset in favor of a producing one speaks to a shift in capital prioritization toward cash-generating projects. Located roughly 270 kilometers offshore São Paulo, the Lapa field has been in production since 2016 and has shown consistent performance. The Lapa South-West tie-back project, approved in 2023, is expected to boost daily output by 25,000 barrels by the end of 2025. With the additional 3% stake acquired from Shell, TotalEnergies will now operate 48% of the Lapa field, thereby enhancing its strategic and operational leverage.

According to Javier Rielo, Senior Vice President Americas, Exploration & Production at TotalEnergies, the company is targeting “low-cost, low-emission projects” across Brazil’s offshore landscape. This includes recent commitments to the Atapu 2 and Sépia 2 developments, sanctioned in 2024. The Lapa field fits squarely within this framework—offering existing production, regulatory clarity, and manageable emissions intensity.

The move also consolidates TotalEnergies’ portfolio around assets where it holds operator status, a model that allows for tighter cost controls, technical efficiency, and more predictable capital returns. This swap therefore aligns with a broader portfolio optimization narrative that prioritizes operator-driven cash flow over minority positions in early-stage projects.

How Does This Reflect Broader Sector Trends in Brazil’s Offshore Market?

Brazil’s pre-salt Santos Basin continues to attract long-term capital from international oil companies, thanks to its world-class geology, robust production economics, and relatively stable fiscal regime. With breakeven costs often below $40 per barrel and carbon intensities lower than many global counterparts, pre-salt oil is increasingly positioned as a strategic hedge against both energy transition uncertainty and commodity price volatility.

The Shell–TotalEnergies transaction is indicative of a broader strategic shift among supermajors: fewer assets, deeper control, and more immediate returns. For Shell, this translates to scaling up its operator footprint in high-potential but technically challenging developments like Gato do Mato. For TotalEnergies, it means extracting more value from already producing assets such as Lapa, where enhanced recovery and brownfield optimization are cost-effective pathways to reserve growth.

With both companies deeply embedded in Brazil’s energy ecosystem—Shell as one of the country’s largest foreign oil producers, and TotalEnergies operating across E&P, renewables, and downstream—the transaction highlights confidence in Brazil as a long-term hub for profitable, lower-emission oil.

How Are Markets and Investors Reacting to the Swap?

The market response to the Shell–TotalEnergies asset swap has been cautiously optimistic. Shell plc (LSE: SHEL) shares remained steady following the announcement, suggesting investors see the transaction as a value-neutral move that tightens Shell’s strategic focus without introducing balance sheet stress. The absence of cash consideration in the deal reinforces capital discipline and allows Shell to continue its capital returns program without disruption.

TotalEnergies SE (EPA: TTE), meanwhile, gained modest institutional interest, particularly from funds seeking exposure to near-term production upside. The additional 3% in Lapa, which is forecast to deliver material production growth by end-2025, improves TotalEnergies’ internal rate of return (IRR) on its Brazil portfolio and supports the company’s dividend and buyback commitments. Brokerage commentary also highlights that higher operatorship simplifies decision-making processes and reserve accounting, two factors important for equity analysts modeling free cash flow growth.

Institutional flows from European ESG-focused funds remain favorable to both firms, particularly given the comparatively low carbon intensity of Brazil’s offshore barrels. This positioning plays well into evolving investor expectations around climate-resilient profitability and energy security.

What Comes Next for Shell and TotalEnergies in the Region?

Pending regulatory approval, the deal is expected to close in late 2025. For Shell, the next milestone will likely be the awarding of contracts for FPSO units and subsea infrastructure related to Gato do Mato’s development. With a 70% stake and operator control, Shell is expected to fast-track early-phase engineering and procurement, potentially targeting first oil before 2029.

For TotalEnergies, the focus will shift to executing the Lapa South-West tie-back expansion. With production expected to rise by 71% (from 35,000 to 60,000 barrels per day) by year-end, the increased stake positions the French major for near-term revenue growth. This incremental volume will also enhance economies of scale at the field level, improving per-barrel profitability.

Looking further ahead, both companies are expected to participate in upcoming licensing rounds for offshore blocks, with Brazil’s pre-salt auctions continuing to draw international attention. Analysts also expect Shell and TotalEnergies to deepen their footprint in Brazil’s low-carbon segments, including offshore wind, hydrogen pilots, and integrated LNG ventures.

This strategic asset swap between Shell and TotalEnergies is emblematic of the evolving logic in global upstream portfolios—favoring operatorship, cash flow visibility, and regulatory simplicity in high-quality basins like Brazil. As both companies reposition their holdings, the Santos Basin continues to serve not just as a prolific resource base but also as a testing ground for capital-efficient, low-emission offshore development strategies. With Gato do Mato and Lapa now more clearly divided under operator control, execution risk declines and strategic focus increases—an outcome likely to appeal to investors demanding both environmental accountability and financial performance.

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