OilVoice - Brazilian Lower House Passes Petrobras Capitalisation Bill

Brazilian Lower House Passes Petrobras Capitalisation Bill

Friday, March 05, 2010

Brazil's national energy firm Petrobras is one step closer to lining its coffers after the lower house of parliament approved a bill this week to capitalise the company through the injection of state-held oil reserves. The bill was the last component of a legislative package of four bills regarding subsalt oil development that required approval by the legislative Chamber.

The speed of the passing of the fourth bill has come as some surprise to commentators given that several aspects of it were seen as particularly controversial. It seems the lower house has succeeded in wrong-footing these commentators. Even so, the whole legislative package is expected to face a number of obstacles on its way to gaining the approval of the upper house, the Brazilian Senate.

Under an urgency clause imposed by incumbent President Lula da Silva, the upper house now has until the middle of next month to vote on the package of energy bills. The government is hoping to pass them into law by June of this year, before the start of the general election campaign. Any further delay beyond June could indefinitely prolong the regulatory ambiguity surrounding Brazil's multibillion barrel subsalt projects.

Following the bill's final approval, Petrobras is planning to launch a share offering to existing stakeholders. The government is set to pay for its entire offer entitlement, by transferring to Petrobras offshore federal acreage holding 5 billion barrels of oil reserves.

For the federal government, the deal would allow it to boost its voting stake in Petrobras to as much as 70%, up from the present 55.7%. This would further reverse the partial-privatisation of the company seen nearly a decade ago, when the state and connected organisations sold off some of their shares to allow Petrobras greater operational autonomy.

Opponents of the capitalisation plan argue that Lula's plans are part of a larger nationalization project for the company.

At present, the proposed value of the share offering is unknown, as the government is yet to price the oil it will transfer to Petrobras. However, market commentators estimate that it will be somewhere in the region of US$4 to $8/ per barrel, equivalent to a rights issue of $30-50 billion.

The wide range of analysts' estimates best serves to highlight that the size of the capital injection at this stage remains a mind field, as the new 5 billion barrels of reserves have yet to be discovered, let alone priced.
In light of the controversial aspects of Petrobras' capitalisation, the bill's swift passage through the Senate is far from assured. Although Lula's allies have been able to strike a deal with the powerful centrist faction in the lower chamber to get the bill passed, a further string of concessions may be required to secure the needed majority vote in the upper house.