Latin Finance - June 2008 - 28

funding petrobras Striking Cash by John Rumsey n early May, after a spectacular share price run-up on the back of new discoveries, Petrobras became the world’s ninth-largest company with a market value of just over $248 billion. Still half the size of Exxon, it is now the second biggest oil producer in the Americas. Even so, the extent of new Petrobras discoveries remains a subject of fierce debate, thanks to some seriously badly handled news flow. Harold Lima, head of Brazil’s National Petroleum Agency, announced in a public forum April 14 that the company’s deep-water Carioca field could hold up to 33 billion barrels of oil. Petrobras immediately announced that these were not its figures and has since confirmed only that the Tupi field, part of the Carioca area, may contain up to 8 billion barrels of oil and natural gas. Still, that is not to be sniffed at. It would boost the country’s reserves by more than 50% and other finds, such as Jupiter, will expand that further. Large, upward revisions to capital expenditure are all but certain since the oil discoveries are under salt layers and lie up to 10,000 meters below sea level. Heat, pressure and distance make the feasibility and economics of getting the black stuff out murky. The deepest oil lift to date is 2,700 meters reached last year by Anadarko Petroleum. The technology to explore all these fields is not ready yet and it is not clear that it will be in short order, says a senior São Paulo-based investment banker. He adds that new technology is emerging fast in deep-sea drilling and, as this becomes available, the existing methods they replace become cheaper. The burning question for Petrobras in developing these huge and deep sites is what capex needs will be and how they can be most efficiently funded. The I Petrobras needs to tap into a deep well of cash to exploit all of its potential. It must woo investors and banks to secure the most attractive rates. Petrobras needs more than $100 billion to develop significant reserves buried deep below the sea firm had announced that it expects to spend $112 billion through 2012, but analysts say this number is quaintly out of date. They are awaiting an upward revision, although none of them is venturing a guess on just how high until more data become available. “Not even the president and CFO know the answers to these questions on capex,” says Ted Helms, head of investor relations at Petrobras, speaking mid-May. In September, the firm will present its five-year strategic plan, including overall spending and estimates for developing the Tupi presalt level finds and other fields. That will help shape estimates but even then Petrobras will not have a huge amount of certainty, Helms adds. Ramping up Issuance Petrobras is already raising debt issuance to ramp up production. Almir Barbassa, CFO, has announced that the company would like to sell $3.6 billion in bonds this year, compared to less than $800 million, on average, each year from 2001 through 2007. In February, however, the firm got a shock when it tried to finance some $500 million in a retap of it 6.125% of 2016 and decided to pull the deal when it realized that it had underestimated how much it would need to pay. The transaction launched as investment grade capital markets seized up, notes Helms, pointing out that it coincided with AIG’s announcement of a $5.3 billion loss and JPMorgan’s acquisition of Bear Stearns at 28 LATINFINANCE June 2008

Latin Finance - June 2008

Table of Contents for the Digital Edition of Latin Finance - June 2008