Petrobras looks abroad to refine finance options

By Carola Hoyos in London

Published: February 3 2009 02:00 | Last updated: February 3 2009 02:00

Petrobras, Brazil's national oil company, is in direct talks with governments including Washington and Beijing to help finance the $174bn development of its huge reserves.

The partially traded group recently discovered the biggest oil fields in Latin America in the past 30 years and industry leaders, such as Tony Hayward, BP's chief executive, believe the waters off Brazil's south-eastern coast hold oil reserves as big and important as those discovered in the North Sea in the 1970s.

José Sergio Gabrielli de Azevedo, Petrobras's president and chief executive, told the Financial Times that Petrobras had secured almost all of its financing for this year and over the five-year period could finance $120bn from its own cash flow.

But that still leaves the company with a large financial hole it will need to plug to realise its goal of increasing current oil and gas production of 2.2m barrels a day to 3.3m b/d by 2013 and to 5.7m barrels a day by 2020.

"It's going to be tough, it's going to be challenging, but it is not impossible," he said, adding: "We have had several talks with different countries, not only China, even the US. We think this is going to be an important source of financing for us."

The UAE is also thought to have shown interest.

In the US, Mr Gabrielli said Petrobras had held conversations with Export-Import Bank and Overseas Private Investment Corporation, which he said wanted to improve the presence of US companies in Brazil. But he said his conversations in Washington were hampered by the fact there was not one central institution.

He said that, in return for help financing the project, Petrobras would guarantee future oil and oil products.

"In relation to the US, today we are already a net exporter of petroleum products. This is going to increase," Mr Gabrielli said.

Analysts and other oil company executives agree that securing financing would be one of Petrobras's two biggest hurdles, considering the credit crisis and the fall in oil prices of more than $100 a barrel in six months. The second hurdle is expected to be the technical challenge of extracting oil trapped under thick layers of salt, far below the ocean's surface.

An executive from a competing oil company with operations in Latin America and the North Sea said: "They have found a North Sea. It took 15 big companies more than a decade to develop that."

But Mr Gabrielli said he believed companies that had not helped find the pre-salt fields would be left out.

"Brazil's regulatory system rewards the companies that took exploration risk." He noted that these included: BG of the UK, Galp of Portugal, Repsol of Spain, ExxonMobil and Amerada Hess of the US, and Anglo-Dutch Royal Dutch Shell. "The ones who didn't take it [the risk] are not going to be rewarded," he said.

Presenting its business plan for 2009-2013 last week, Petrobras insisted it would push ahead with plans not only to develop its newly discovered fields, but to build three oil refineries, Brazil's first new refineries for almost 30 years. Mr Gabrielli said Petrobras was unique among big oil companies in having big new fields to develop and a big domestic market.

But its plans also involve expanding export sales of value-added refined products rather than crude oil. "To capture [our advantages] we need to build capacity now," Mr Gabrielli said. "If we don't build it now we will miss our chance."

Almir Barbosa, financial director, said Petrobras still needed to raise about $8bn to meet investment targets of $28bn this year and $35bn in 2010. He said the company was striving to reduce its financing needs by a cost-cutting programme, involving renegotiation of all projects, especially those still in their early stages. Additional reporting by Jonathan Wheatley in São Paulo