Corrects the fair value estimate of analysts in the fourth para
Brazilian federal oil company Petroleo Brasileiro SA (PBR) or Petrobras, agreed Wednesday to buy 5 billion barrels of oil reserves from the Brazilian government that sets the stage for one of the world's largest-ever public share offering, which was earlier postponed to September. The company expects to release the terms of the up to US$85 billion share offering on Friday.
According to the agreement, Petrobras will make an initial payment of US$42.53 billion in new shares to the Brazilian government for the right to explore and produce oil, natural gas and other hydrocarbon fluids in specified areas from government-held offshore deposits. The production will be limited to a maximum yield of 5.0 billion barrels of oil equivalent, resulting in a weighted average price of US$8.51 per barrel.
Petrobras' committee of minority shareholders have approved the terms of the deal, even with regard to the weighted average price per barrel of oil equivalent. For the deal, Barclays Capital acted as financial adviser to the Committee and issued a Fairness Opinion on the transaction.
The price exceeds the fair value estimate of analysts, who value the reserves at '$5 to $6 per barrel.' However, it could make up for the higher costs as it will reportedly pay lower taxes and royalty payments than it pays on existing oil production.
Petrobras said it will fund the deal with proceeds from its planned common and preferred share offering in September. The proposed share offering is also expected to fund the company's Business Plan 2010-14, as approved by Congress and under negotiation with the Brazilian government.
The business plan, which was approved on June 21, envisages total investments of US$ 224 billion, representing an average of US$ 44.8 billion per year meant to turn Brazil into a major oil exporter. The Business Plan foresees investments of 95% or US$212.3 billion of the total in Brazil and 5% or US$11.7 billion abroad.
Petrobras expects to reach an oil production goal of 3.9 million barrels of oil equivalent per day or boe/d, at the end of the business plan in 2014, and projects production of 5.4 million boe/d in 2020. Currently, total production of oil and natural gas from Petrobras in Brazil and abroad in first half of 2010 has been 2.57 boe/d.
The company currently continues in quiet period, as per regulatory stipulations, until the publication of the closing of the IPO and will continue to disclose to the market data on the normal course of its activities and information about the IPO, under the applicable regulations.
Meanwhile, the Brazilian government is going all out to support the public offering and has allowed government-run banks and the treasury's sovereign wealth fund to buy more shares if minority shareholders decline to participate in the offer, according to the Wall Street Journal.
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June 05, 2026 16:18 ET A busy week for economic news flow saw a slew of reports being released that reflected the trends in the U.S. labor market. In Europe, economic growth and inflation data gained attention as the European Central Bank and Bank of England head for policy session later in the month. In Asia, the monetary policy session of the Indian central bank was in focus as the country, a major oil importer, reels under the pressures of a weaker rupee and rising inflation.