Brazil’s state-run oil company Petrobras set to price world’s largest share offeringBy Bradley Brooks, AP
Friday, September 24, 2010
Petrobras set to price biggest share offer
SAO PAULO — Brazil’s state-run oil company was set Thursday to announce pricing for the world’s largest share offering, with the expected proceeds of $79 billion being used to tap some of the largest oil reserves discovered in decades.
Despite concerns about a growing government role in Petroleo Brasileiro SA, or Petrobras, indications are that investor demand is more than enough to sell all the shares.
The money will be used to develop massive offshore oil reserves that Petrobras has discovered in the past three years — some of the largest finds in decades that could hold more than 50 billion barrels of recoverable oil.
“From Petrobras’ perspective, the share offering was successful in so far as there has been a good amount of appetite from private investors,” said Christopher Garman, the Eurasia Group’s Latin America director. “The more important objective of the share offering is to raise capital to give Petrobras the conditions to be able to deliver on their ambitious investment targets.”
Petrobras shares ended 3.2 percent higher on Brazil’s Bovespa exchange Thursday in anticipation of the sale. Shares that trade in the U.S. gained 2.5 percent.
Brazil’s government — which already controls 40 percent of the company and more than 50 percent of its voting stock — will receive $43 billion in shares in exchange for allowing Petrobras to drill for 5 billion barrels in reserves. The other $36 billion will be cash raised from investors.
Petrobras’ plans call for it to invest $224 billion over five years to develop offshore oil fields in the so-called “pre-salt” region. Analysts have said it will still need to raise more than $50 billion through additional stock offerings or loans to meet its goals.
Most of the pre-salt fields lie at least 115 miles (185 kilometers) off the southeast coast of Brazil, more than a mile below the ocean’s surface and under another 2.5 miles (4 kilometers) of earth and salt.
Estimates of the entire area’s recoverable oil range between 50 billion and 100 billion barrels, though most officials think it is on the lower end of that spectrum.
Brazilian President Luiz Inacio Lula da Silva hailed the finds as the nation’s future, a second declaration of independence and an economic savior for 57 million Brazilians living in poverty — 30 percent of the population. The military wants new submarines and jets to protect the crude. Leftist groups want it all nationalized.
The possibilities the oil fields hold for both Petrobras and the country are sure to tempt many investors. Others, however, aren’t ready to jump in just yet.
The price of the 5 billion barrels of oil Petrobras will be allowed to develop in return for the government’s new shares in this week’s offering was set at $8.51 earlier this month.
But the company and the government will revisit that price after Petrobas spends four years exploring six offshore oil fields. If the oil is cheaper to access than originally estimated, or if oil prices have risen and therefore increased the value of the oil, Petrobas may have to pay the government a higher price.
“Petrobas is a big, important company and it’s going to produce a lot of oil in the next seven to ten years,” says George Shiau, a partner and energy specialist at the utility and energy hedge fund Copia Capital. But he’s concerned that Petrobras’ full costs won’t be clear for a number of years.
Such concerns weren’t evident in a speech Silva delivered Thursday.
“Never before in the history of capitalism has happened what will take place tomorrow in the Sao Paulo stock exchange,” he said. “We’re going to capitalize Petrobras on behalf of the pre-salt, and it’s going to be the biggest capitalization ever done in the history of humanity.”
Associated Press writer Jonathan Fahey in New York contributed to this report.
Tags: Brazil, Energy, Latin America And Caribbean, Sao Paulo, South America