Tuesday, June 29, 2010

Credit Suisse: Brazil Petrobras Share Offering 'North' Of $60B


RIO DE JANEIRO (Dow Jones)--A planned share offering by Brazilian state-run energy giant Petroleo Brasileiro SA (PBR, PETR4.BR), or Petrobras, should come in "north" of $60 billion, Credit Suisse analyst Emerson Leite said Tuesday.

Petrobras plans to sell the shares to fund its $224 billion five-year investment plan and pay the government for rights to 5 billion barrels of offshore crude. The share sale is expected for September.

The share sale "should generate about $25 billion in fresh cash, with about $35 billion to pay for the barrels," Leite said on a Credit Suisse-sponsored conference call.

Petrobras and the Brazilian government should arrive at a valuation of between $7 and $8 a barrel for the oil rights, up from previous estimates of between $5 and $6 a barrel, Leite said.

Brazil's National Petroleum Agency, or ANP, recently hired Gaffney Cline & Associates to certify government-held reserves, while Petrobras has hired DeGolyer & MacNaughton.

Petrobras's recent delay of the share offering to September, which is closer to the country's presidential elections, should not have any effect on the company's plans, the analyst said.

"It's, obviously, time wise, better to have it done beforehand, but in a way I think Petrobras's long-term outlook will not change materially as a function of elections," Leite said, although he added that the timing has caused some near-term uncertainties.

Congressional delays to passage of the government's planned capitalization of the company and uncertainties surrounding the share offering have dragged on the company's stock in recent months.

Petrobras's locally traded preferred shares are down nearly 26% so far in 2010, dropping the company from the second-largest oil company by market value to fourth. The broader market as measured by the Ibovespa stocks index, meanwhile, is down 9.3% year-to-date.

Leite also noted that Petrobras's production targets released with the company's 2010-2014 investment plan appeared "virtually unachievable." Petrobras has been unable to reach its annual production targets in recent years.

Petrobras estimated it would reach average daily output of 3.907 million barrels of oil equivalent, or BOE, by 2014 and 5.382 million BOE by 2020.

On the positive side, Petrobras continued to approve the economics surrounding development of the presalt region. The ultra-deepwater oil wells have showed positive reservoir response and good productivity, Leite said. In addition, the company's recovery factor of 25% appeared conservative.

"Economics are improving and our fair value assessment of $4 to $5 a barrel should increase to $5 to $6 per BOE," Leite said.

-By Jeff Fick, Dow Jones Newswires; 55-21-2586-6085; Jeff.Fick@dowjone.com

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