Petrobras Valued at US$220 Billion

By Doug Gray, Senior Contributing Reporter

RIO DE JANEIRO – Petrobras President Sergio Gabrielli was celebrating the world’s biggest ever share offer at the end of last week that, according to Brazilian Finance Minister Guido Mantega, now gives the company the second biggest market value in the world. Only Exxon, at US$290 billion, is now higher, leaving Chevron and Shell trailing behind.

Petrobras' President Sergio Gabrielli, photo by Agencia Brasil.

The US$67.9 billion share offer gives Petrobras an estimated market value of US$220 billion, and dwarfs the previous all-time biggest share offering of US$36.8 billion by Japanese mobile phone company NTT DoCoMo in 1987. The funds are critical in Petrobras’ efforts to double oil production over the next ten years and turning Brazil into a major oil exporter.

“With more capital, the company can borrow more and work less leveraged loans,” said Mantega during the launch of the offer in São Paulo. “The capitalization still leaves the company with a cash position of US$25 billion to invest.”

President Lula, also present at the ceremony, defended the state’s participation in the country’s economy, saying that a “weak state has never been synonymous with a strong private sector.”

He was also quick to reassure the assembled executives and media that the money would not be squandered or “lost in a maze of mistaken waste and interests” according to Agência Brasil press agency.

The Central Bank (Bacen) had to respond quickly in order to keep the Real from appreciating too much as the tide of investment pushed it upwards even before the announcement was made.

Petrobras’ share price had in fact dropped around ten points since April, as optimism about the accessibility of the abundant riches deep below the ocean and the huge costs of extraction waned significantly, coupled with long delays in legislation surrounding its exploitation by foreign companies.

Petrobras' Rio headquarters 'EDISE', photo by Doug Gray.

The likes of oil giants BG and Shell have already made huge investments in Brazil’s offshore fields, but rigs are sitting underused or out of action entirely at the cost of tens of millions of dollars a day as the situation drags on. However the costs have been outweighed by the potential profits, which have merely become more attractive following the U.S. Government’s moratorium in the Gulf of Mexico.

A further R$423 million was injected from workers who opted in to an offer of using their FGTS money – a supplementary income fund only accessible at the end of an employment contract and not if the employee is fired – to buy the shares. A total of 25,544 workers chose to take advantage of the offer according to the Caixa Economica federal bank.

To underline the momentous changes the country looks towards at the start of the new decade, Lula made a telling comparison with the Brazil he assumed control of and that of today, recalling that in 2003 the BOVESPA stock market moved around US$200 billion per year. Today it moves US$2 trillion, ten times more.