Brazil Group Says Plan Unfair to Petrobras Minorities

 Brazil’s plan to increase the capital of Petroleo Brasileiro SA is unfair to minority shareholders because they will have to pay for new shares in cash, the head of the Brazilian association of investors said.

“Minority shareholders will have to participate with cash, while the government will use a future asset, with uncertain price and uncertain results,” Edison Garcia, superintendent of the association known as Amec, said today from Sao Paulo. “There is uncertainty and consequently a risk.”

As part of new oil rules announced Aug. 31, the government will sell Petrobras, as the company is known, the right to produce 5 billion barrels of oil in the so-called pre-salt areas. In return, the government will boost its stake in the company, potentially through Brazilian treasury bills.

Existing shareholders will have the right to buy new shares from Petrobras to maintain the level of their shareholding, though they will have to pay for them in cash. Brazil’s oil plan still needs to be approved by Congress.

The plan has an “inequality” component, Garcia said. Petrobras Chief Executive Officer Jose Sergio Gabrielli said today on a conference call the planned share sale may be worth three times the value of the oil rights.

Any sale must take into account existing shareholders exercising their so-called preemptive rights to increase their holdings in full, Gabrielli said. The company hopes the sale will take place in the first half of 2010. The government owns about a one-third stake in the Rio de Janeiro-based company.

Legal Transaction

The company’s lawyers have advised Petrobras that such a transaction is legal, Gabrielli said. The value of the oil will be determined by technical reports from “qualified third parties,” and will be acquired at a “fair” price, he said. “Petrobras, the government and shareholders will lose out if the price isn’t fair,” he said.

Petrobras said through its press office in Rio de Janeiro the company won’t comment on Garcia’s statement because the plan still needs to be discussed in congress.

“The share offering may be around $50 billion including what the government will add into the company and minority shareholders,” said William Landers, a senior portfolio manager for Latin America at Blackrock Inc., in a telephone interview.

The stock sale will not be open to investors who do not currently own shares of Petrobras, Gabrielli said.

Estimates from Credit Suisse Group AG and Brazilian Senator Romero Juca this week forecast the transaction to buy the oil rights alone could be worth between $20 billion and $50 billion.

Petrobras shares rose 55 centavos, or 1.7 percent, to 32.15 reais today in Sao Paulo.

Market Reassured

Max Bueno, Sao Paulo-based analyst with brokerage Spinelli SA, said the market was reassured by Gabrielli’s explanation today on a conference call of the exclusive rights to 5 billion barrels of oil that Petrobras will acquire from the State.

“Gabrielli made it clear on the call that the State is guaranteeing Petrobras the right to 5 billion barrels-worth of measured oil reserves, rather than to an area that may have estimated resources, not measured, of 5 billion barrels,” Bueno said in a telephone interview after the conference call.

Brazil is following countries from Venezuela to Russia in taking greater control of crude reserves after prices rose to a record $147.27 a barrel last year. The discovery of the pre- salt Tupi field was the largest since Mexico’s Cantarell.

Sole Operator

Petrobras will be the sole operator of all pre-salt oil fields still to be exploited. The company also will hold a minimum 30 percent stake in all joint ventures set up to bid for licenses, according to a statement from the office of Brazilian President Luiz Inacio Lula da Silva.

The government attached an urgency clause to the new oil regulation, which is a request for legislators to pass the bills within three months. Opposition parties began a filibuster in the lower house and are demanding the clause be removed, Gustavo Fruet, a deputy with the Social Democracy Party, Brazil’s biggest opposition party, said in an interview.

Petrobras’s Gabrielli said that lawmakers could take as long as 135 days to approve the legislation should they change it in the Senate.

The pre-salt area runs 800 kilometers (500 miles) along the coast from Espirito Santo to Santa Catarina states and has oil deposits beneath a layer of salt resting as deep as 3,000 meters (9,843 feet) beneath the ocean surface and another 5,000 meters below the seabed.