Petrobras Shares Fall after Vexed Deal

By The Maritime Executive 06-25-2014 10:02:00

Brazil plans to sell billions of dollars worth of offshore oil rights to state-run oil company Petrobras, a move expected to saddle the company with new costs even as its debt soars and it struggles to meet existing production targets.

Shares of Petroleo Brasileiro SA, as Petrobras is formally known, fell in Sao Paulo trading on Tuesday. Preferred shares, its most-traded class of stock, slipped 3.9 percent to a nearly three-week low.

Some investors said the move, to sell 5 billion to 9 billion barrels of offshore oil rights to the company, was an attempt to transfer future Petrobras profit to government coffers as an expected bonanza from offshore oil fails to materialize as quickly as hoped.

Under the plan, approved by the country's national energy council on Tuesday, the government will receive 15 billion reais ($6.82 billion) by 2018. Two billion reais are due this year, said Marco Antonio Almeida, secretary of oil and gas at the Mines and Energy Ministry.

"This confirms our worst fears," said analysts at Itau BBA in Sao Paulo, the investment-banking and brokerage arm of Banco Itau-Unibanco Holding SA.

"There is no way for Petrobras to anticipate the production of any of those barrels unless it postpones other projects ... In other words, Petrobras will in fact pay 15 billion (reais) to the government in five years for barrels to be produced in the long term," the analysts wrote in their note.

The government will also get 76.5 percent of all oil produced after development costs are paid, money it will be able to spend or see transferred to local governments with little congressional oversight.

Brazilian President Dilma Rousseff, who promised billions of dollars in oil revenue from offshore fields when she ran for and won her first term in 2010, has been slipping in the polls ahead of an October election.

Despite about $200 billion of Petrobras investment since then, little of the expected new revenue has materialized and stagnant production has made Petrobras the world's most-indebted and least-profitable major oil company.

As Brazil's economy has slowed, party loyalists including former President Luiz Inacio Lula da Silva have called on Rousseff to boost spending to win back support.

Petrobras will buy the rights in areas where it bought 5 billion barrels of still unproduced oil from the government in 2010 for $43.5 billion of Petrobras stock. Those areas are believed to hold more oil than first expected, though there is no certainty any of the oil will ever be produced from the high-risk, high-cost, deepwater oil areas.

Petrobras Chief Executive Maria das Gracas Foster said later on Tuesday that the government's plan to sell new oil rights "is an excellent opportunity" for the company.

Foster said Petrobras will increase future capital spending plans by 3 percent above its $221 billion 2014-2017 plan and build nine new offshore oil platforms to increase output under the new deal.

($1 = 2.22 Brazilian reais) 

By Leonardo Goy and Marta Nogueira (C) Reuters 2014.