Petrobras Shows Its Strength

New Wave Media

With Brazilian presidential elections imminent, and having just completed its successful shares offer, Petrobras finds itself in a privileged position with the new pre-salt legislation guaranteeing the company as sole operator of all the pre-salt blocks negotiated from the 11th bidding round onwards.

Although some parts of the new legislation are still to be voted it is considered as a certainty that the bils concerning Petrobras´ greater influence in the pre-salt will pass.
Since the discovery of the Tupi field in 2007, and other pre-salt fields discovered at the Santos Basin, there has been national and global excitement over the possible extent of Brazil´s pre-salt reserves. It is important to get a big picture of the deepwater and pre-salt regions in Brazil, also looking at the major regulatory and policy changes that will occur and understand the effects these will have on future investment opportunities in the Brazilian pre-salt.

The international players that managed to acquire concession areas in the early bidding rounds pertaining to pre-salt plots in the Santos Basin can be considered very fortunate. The next bidding rounds will most probably not be offering as many prime choices as before since regulations are set for major changes that will most probably restrict international involvement in the Brazilian pre-salt market, new regulations will also allow Petrobras to have a minimum participation of 30% capital stake on all new pre-salt blocks.

Brazil´s congress is negotiating four major bills which will significantly alter state policy towards the pre-salt reservoir regions and this will have a game changing effect on business related to the pre-salt regions. There are actually three regions in the Brazilian offshore that have been proven to contain large pre-salt reservoirs; Santos Basin, Campos Basin and Espirito Santo Basin.

Of these three basins, the Santos Basin is by far considered to have the greatest reserves, and is also where the world spotlight shines. The very recent discovery of the Franco reservoir, estimated to contain 4,5 billion barrels and the Libra reservoir, estimated to contain 8 billion barrels has risen the stakes and there is still the possibility of more major (over 5 billion barrel) discoveries in other new exploratory wells at the southern and eastern portions of the Santos Basin.

The fact that NPA (National Petroleum Agency), which has oversight over all aspects of oil and gas E&P in Brazil, released its estimate of a total Brazilian pre-salt recovery potential of a 80 billion barrels (many leading Brazilian geologists believe in over 100 million barrels), has only increased the players´ and major investors´ excitement over the discovery possibilities and potential of the pre-salt plays but also raised concern over Petrobras´ capacity to finance the pre-salt E&P.

Recently Petrobras finalized the world's largest share offer, this was done mainly in order to finance the continued pre-salt E&P. Petrobras announced that it priced the issue of about 4.08 billion voting and preferred shares, raising approximately $67 billion. More share offers are pending on increased demand for shares.

 Although many international market analysts were skeptical of Petrobras´s chances of attracting enough investors for its share offer, the company came away unscathed and strengthened, having easily attained the investment funds it expected and then some. Some executives in the Brazilian O&G market implied that a number of investors were only making negative speculations on Petrobras´s capability to undertake a successful share offer in order to try forcing a decrease in the share prices, but that is basically normal in any stock market. This successful Petrobras share offer surpasses the previous world record share offer, which was set in 1987, when Japanese telecommunications giant Nippon Telegraph & Telephone Corp. raised $36.8 billion.

The share sale is vital to Petrobras' plans to develop the offshore deepwater pre-salt plays at hand and also continue its expensive pre-salt exploratory program. As you read this, the pre-salt map of Brazil is being re-drawn, with high potential for new pre-salt discoveries between the north Campos Basin and south Espirito Santo Basin, along with a recent NPA disclosure that it is to receive, in the fourth quarter of 2010, the final seismic analysis from CGGVeritas for areas in the south Santos Basin, off the State of São Paulo. According to the NPA, preliminary seismic data analysis indicates a significant probability of major reservoirs of light pre-salt oil to be uncovered in this southern deepwater.

 

Claudio Paschoa