Petrobras loan strengthens subsalt projects

Brazilian national oil company Petrobras needs more capital to carry out its ambitious subsalt development program, but the transfer of 25 billion real ($13.3 billion) in treasury notes from state bank BNDES will ensure that offshore projects continue to move forward as planned.

John Waggoner

HOUSTON -- Brazilian national oil company Petrobras needs more capital to carry out its ambitious subsalt development program, but the transfer of 25 billion real ($13.3 billion) in treasury notes from state bank BNDES will ensure that offshore projects continue to move forward as planned.

The finance will go to three main areas, with some 9.4 billion real ($5 billion) to go to general company operations including offshore. The remainder is destined for a refinery project, with some 5.7 billion real ($3 billion) to go toward expanding the gas distribution system to handle new production from subsalt reservoirs.

“With the price of oil above $65/bbl, we will be fine for the next five years,” Petrobras president Sergio Gabrielli says.

Analysts say Petrobras will still need more capital to bankroll the some $174.4 billion in planned capital expenditure between 2009 and 2013. However, the BNDES funding was seen as step in the right direction, says global research consultants Wood Mackenzie. “Petrobras still faces huge logistical and technical challenges associated with the development of the subsalt, and beyond,” WoodMac says.

With the discovery of up to 100 Bbbl of oil and gas in the Brazilian subsalt areas offshore, according to some estimates, Petrobras has embarked upon an unprecedented expansion of offshore technology. Starting with fairly limited infrastructure, over the next 10 or 20 years, Petrobras will transform the vast (200,000-sq km [77,220-sq mi]) Santos basin into an intricate network of production platforms, offshore storage facilities, and pipelines.

There is also the possibility of some sophisticated gas facilities (such as floating LNG and floating GTL) with technologies not yet commercially proven, but considered likely areas for innovation, WoodMac says.

The funding from BNDES is the first time Brazilian treasuries have been transferred from the bank to finance Petrobras, and the company will be allowed to sell the notes on the open market as needed to raise capital. The notes have a 20-year tenor and seven-year grace period for repayment, with Petrobras to repay BNDES a coupon of 1% per year over the face value, and adjusted for currency fluctuation over the repayment term.

Brazil’s subsalt bonanza will also benefit foreign contractors and suppliers, who will be called upon to provide goods and services. Petrobras finance director Almir Barbassa says that negotiations are under way with Eximbank to double its present trade credit limit of $2.2 billion for the purchase of goods and services from US suppliers.

07/31/2009

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