Brazilian state oil company Petrobras won shareholder approval Tuesday for one of the world’s largest stock offerings, which will finance ambitious plans to pump billions of barrels of oil from deep beneath the ocean floor. The federal government, which owns 32 per cent of the company, spearheaded the ballot, the cornerstone of a plan to turn the country into a major energy exporter. The vote paves the way for Petrobras to issue as much as 150 billion reais ($84-billion U.S.) of new stock in an oil-for-shares swap and an offering to minority shareholders. The government receives shares in the company in return for giving Petrobras access to up to five billion barrels of offshore oil. 'The capitalization is necessary to improve Petrobras’ financial muscle, protect its credit metrics and pay the federal government for the oil transfer rights,' the government said in a note read at the assembly. The capitalization plan also further cements Brazil’s determination to push ahead with the development of deep-water oil reserves that are seen as a ticket to economic development, despite growing scepticism about offshore drilling sparked by BP’s massive Gulf of Mexico oil spill.
The proposals increasing the limit of existing common and preferred shares and amending company statutes to facilitate the capital injection were approved by 84 per cent of Petrobras’ shareholders. But the transaction is still shrouded in uncertainty because the company has not said how many shares it will issue, nor has it established the value of the oil that will be used in the swap. Approval from the company’s more than 300,000 shareholders hands a swift victory to President Luiz Inacio Lula da Silva in his bid to assert greater state control over Brazil’s newly discovered oil wealth and use Petrobras as a tool to make the country a global powerhouse. The plan 'increases the government’s ability to intervene in the company’s investment decisions,' Erasto Almeida, an analyst at New York-based political risk firm Eurasia Group, wrote in a note. 'Such a trade-off and policy trend is inherent within Petrobras’s new capital expenditure plan.'
Replenishing Petrobras’ capital base is crucial for the company’s $224-billion five-year investment plan, which focuses on developing the subsalt region, an area deep beneath the ocean floor under a thick layer of salt that may hold 50 billion barrels of oil. The company could attract up to $25-billion from minority shareholders, while gaining access to as much as 5 billion barrels of crude that will likely include oil from the subsalt region, one of the world’s biggest discoveries in the last decade. Preferred shares, the company’s most widely traded class of stock, closed down 1 per cent at 29.11 reais Tuesday after the proposals passed. It also hands a victory to Petrobras management, which has for months struggled to push forward the complex operation and ensure it can launch the share offer in July, before capital markets slow down for summer vacation in the northern hemisphere.