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Emerging Markets

Petrobras aims at tripling oil reserves - finance officer

CFO anticipates credit upgrade

Petrobras, Brazil’s state-controlled oil company, is aiming almost to triple its proven reserves of oil within the next three years, and may get a further upgrade in its credit rating by Moody’s.

The US rating agency promoted Brazil’s sovereign debt to investment grade late last month and put Petrobras on a positive outlook from its current investment grade Baa1.

Petrobras chief financial officer Almir Barbassa told Emerging Markets that the upgrade “may happen within a year if everything goes according to plan”.

Petrobras, the largest listed company in Latin America, has a leverage ratio of 28%, while “the ideal range stands somewhere between 25% and 35%”, Barbassa said.

The government intends to increase the Petrobras’s capital in order to boost its financing capacity. The state’s additional stake will be equivalent to the value of 5 billion barrels of the new reserves.

“The most critical issue will be the valuation of the price of the barrel,” Barbassa said. Minority shareholders will have to put more cash upfront if they do not want their stakes to be diluted.

“Not all of them are expected to subscribe to the offer. The Brazilian government may end up with more than 50% of Petrobras capital, but it is not relevant because it already has the control of the company [with more than 50% of ordinary shares]”, he said.

Proven reserves stand at 14 billion barrels and may jump to 40 billion once the new deepwater deposits discovered off Brazil’s Atlantic coast are added. “This amounts to some 40 years of reserves, on the basis of production of 3 million barrels per day,” Barbassa said.

Barbassa has been courting investment bankers on the fringe of the IMF/World Bank meetings in Istanbul, to whet financial investors’ appetite ahead of the implementation of a new regulatory model for the exploration of the deepwater reserves.

The model, to be voted on by Congress in the coming weeks, strengthens the position of the company, whose monopoly in the oil sector in Brazil was only broken 12 years ago.

If approved by Congress, Petrobras will be the sole operator of all the so-called pre-salt fields – those in ultra-deep waters, below a thick layer of salt – and would have a minimum stake in all of them.

Several foreign operators, which have been operating in Brazil for several years, are miffed. “The problem with this system is that it is going to relegate other companies in the industry to a totally secondary role,” said Joao Carlos de Luca, president of the Brazilian oil institute (IBP).

“We have to leave some space for other companies to operate. Let us leave the great clusters to Petrobras, but let us leave some space for the others,” he added after a conference in Brazil last month.

The rise and rise of Petrobras in the oil industry coincides with an intense campaign to boost Brazil’s position on the international stage. The Brazilian financial minister Guido Mantega confirmed on Sunday that the Brazilian central bank will purchase IMF notes of up to $10 billion, which will turn Brazil into an IMF creditor.

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