Petrobras: $42.5 billion for 5 billion Oil Barrels reserves

Petrobras – the biggest South American Oil Company – will buy reserves of five billion crude oil barrels from the Brazilian government for the sum of 42.5 billion dollars by issuing new shares. Petrobras agreed to pay an average of 8.51 dollars a barrel for the reserves in at least six oil rigs after approximately two weeks of negotiations with the government, according to an official statement today.
The value which set for the reserves will determine how many new shares the company will offer to the investors during the auction. Petrobras shares have recorded losses of 26% during the 2010, amid concerns that the company will pay more than the actual value of oil. This will have as a result to offer reduced earnings per share to the shareholders.

“This is the largest-ever agreement that has been achieved”, stated today the Brazilian Minister of Economy, Mantegka Guido, to reporters. According to Petrobras announcement, approximately 3.1 billion barrels reserves will come from Franco oil rig off the coast of Brazil, 600 million barrels of oil well Iara , 467 million barrels of oil well Florim and 428 million barrels from Taupo Northgouest. Additionally, 319 million barrels will come from Guara East and 128 million barrels from Taupo Sula oil rigs.

Mantegka announced the value of the agreement to 42.5 billion dollars which equals to 8.50 dollars a barrel. The value is higher than the estimations of the UBS AG and Frost Investment Advisors analysts who anticipated the price per barrel reserved to $7.50.

We should note here that billionaire George Soros sold during the second quarter all the shares held of Petrobras. BlackRock Inc. and Banco BTG Pactual SA also sold their shares of Petrobras during the previous quarter.

After the announcement for the agreement, company’s shares increased by 97 centavos, or 3.7%, reaching the 27.03 real in the Sao Paulo Stock Exchange(1 Brazilian real = 0.573066 U.S. dollars).
Petrobras, which plans to sale the shares by the end of this month, announced today that the terms of the share offer will be announced on September 3rd. The company plans to issue enough shares to allow both government and other investors to retain their shares. The sale was scheduled for June but it was postponed as both the company and the government were expecting the estimations for the oil reserves by independent agents.

The new way of share exchange is part of the new rules issued last year, by the country’s president Luís Inacio Lula da Silva in order to increase the government control over the company, following the discovery of the biggest oil reserves of the company during the last three decades. Lula asked the calculation of oil reserves by two separate and independent authorities on 19th of August. In June, Petrobras announced that the management of the shares sale will be handled by “Banco Bradesco SA”, “Citigroup Inc.”, “Unibanco Itau Holding SA”, “Bank of America Corp.”, “Morgan Stanley” and “Banco Santander SA” while “Banco do Brasil SA” will manage the sale of shares to the investors in the domestic market.

On August 13th, the financial director of the company, Almira Barbasa said that “the sale of shares is required in order to replenish the capital after the increase in the deficit”. Debt, as shares percentage increased to 34 % in the second quarter from 32% which was in the first quarter and 28% in the corresponding period last year, according to the Petrobras report. The financial credibility ability of the company downgraded to BBB- by S&P, Fitch Ratings Ltd classified it a level higher to BBB while Moody’s Investors Service ranks the company two levels higher at Baa1.