Sept. 1 (Bloomberg) -- Brazilian President Luiz Inacio Lula da Silva’s plans for the development of the country’s offshore oil fields stripped Petroleo Brasileiro SA investors of $7 billion in a day.

The proposal, announced yesterday, may allow the state to boost its stake in the company and ensure most income from oil exploration “stays in the hands of our people,” Lula said at a press conference in Brasilia. Petrobras, as the Rio de Janeiro- based company is known, led the Bovespa stock index to the biggest drop in the Americas yesterday after the announcement.

The combined market capitalization of Petrobras preferred and common shares dropped 13.3 billion reais ($7 billion) to 306.5 billion reais yesterday from 319.8 billion reais on Aug. 28, according to data compiled by Bloomberg. The company is the world’s fourth-largest oil producer by market value after Exxon Mobil Corp., PetroChina Co. and Royal Dutch Shell Plc.

“Petrobras fell because nobody knows well what the company’s role will be,” David Zylberstajn, former president of Brazil’s national petroleum agency and a professor at the Catholic University of Sao Paulo, said in an interview.

Petrobras will be the sole operator of all so-called pre- salt oil fields that include the Americas’ largest discovery since 1976. The company also will hold a minimum 30 percent stake in all joint ventures set up to bid for licenses, and the government may boost its ownership of Petrobras in exchange for oil rights, according to a statement from Lula’s office.

‘Privileged Access’

“Petrobras will continue to have privileged access to one of the most interesting growth areas in the global oil universe,” Frank McGann, an analyst at Bank of America in Buenos Aires, wrote yesterday in a note to investors.

Brazil aims to become one of the world’s 10 largest oil- producing nations, Energy Minister Edison Lobao said.

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, and helped make Petrobras the world’s third most valuable oil producer.

“The pre-salt is the passport to our future,” Lula, 63, said in Brasilia. “Petroleum and gas belong to Brazilians and to the government. The model to be adopted must ensure that the biggest portion of income stays in the hands of our people.”

New Framework

The changes create “a new regulatory framework to strengthen Petrobras, to allow the government to become the owner of the petroleum,” Lula said. The plan, which requires congressional approval, would allow the government to keep a bigger share of the oil profits by requiring outside companies to share crude drilled from pre-salt fields with the state rather than the current model based on royalty payments.

The proposal also includes the creation of a new state company called Petrosal to manage pre-salt fields.

Petrobras common shares tumbled the most in six months as the company said it may sell new stock to help finance its exploration. The plan raised concern among some investors that the government is seeking to increase its stake at the expense of minority shareholders.

A share sale “will discourage new investment in the stock as potential investors will wait to buy at a discount,” Jayme Alves, an analyst with Spinelli SA in Sao Paulo, said in an interview. “It’s also bad news for the company’s existing shareholders as it will dilute the stock value.”

Petrobras’s common shares rose 47 centavos, or 1.3 percent, to 38 reais at 11:06 a.m. in Sao Paulo trading, following a 4.5 percent plunge yesterday. The preferred shares gained 58 centavos to 31.96 reais, a day after a 3.6 percent decline.

Outperform

The common shares will outperform preferred stock after the gap between the two shrank to the narrowest in seven months, said Eric Conrads, a hedge fund manager at ING Investment Management. International investors will start buying common shares, pushing the gap out again, as they realize those dilution concerns are “overblown,” said Conrads, who helps manage about $12 billion in emerging-market assets at ING Investment Management in Mexico. He’s buying U.S.-traded Petrobras common shares while short-selling the preferred stock.

“The market overreacted a little in Petrobras,” Daniel Gorayeb, a partner at Sao Paulo-based Accerta Investment Consultancy said in an interview.

Lula said Brazil is adopting shared production rules to ensure the government receives a greater portion of production given oil exploration in the pre-salt region offers companies “low risk” and “high profitability.” The success rate in oil exploration in the region is 87 percent, according to Lula.

Failed to Find Oil

BG Group Plc, the U.K.’s third-largest natural gas producer, said Aug. 24 it failed to find hydrocarbons at the Brazilian Corcovado-2 well, one of the two it is drilling together with Petroleo Brasileiro SA in Santos Basin. Exxon Mobil Corp., the biggest U.S. energy company, didn’t find oil or natural gas in the offshore Guarani well, also in the Santos Basin, in July.

Royal Dutch Shell Plc, Europe’s largest oil company, has put investments in oil exploration in Brazil on hold to assess the new rules for the pre-salt oil region.

It’s important that Brazil “get it right, to create a globally competitive system that attracts capital,” Marvin Odum, Shell’s director for exploration and production in the Americas, said at a news conference in Vitoria, Brazil, on Aug. 25. “A poorly designed system wouldn’t be good for Brazil.”

Bill Tanner, a spokesman in Houston for The Hague-based company, said yesterday Shell is reviewing the rules proposed by Lula.

Pre-salt Auctioned

Lula said last week that around 71 percent of the pre-salt exploration and production licenses have yet to be auctioned.

Petrobras Chief Executive Officer Jose Sergio Gabrielli said the company’s proved oil reserves may double in the next two years as the Tupi, Iara and Whales Park fields, whose licenses have already been granted, probably hold about 14 billion barrels of crude.

Brazil’s proved oil reserves totaled 12.6 billion barrels last year, according to London-based BP Plc, which ranks countries by production. 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.

The country will be among the world’s top 10 oil producers within the “short term” and may also contain the world’s 10th largest crude reserves, Energy Minister Edison Lobao said yesterday.

$50 Billion of Oil

Senator Romero Juca, the head of Lula’s coalition in the Senate, said Petrobras will receive $50 billion worth of oil valued at $10 per barrel from the government in exchange for securities. The statement caused Petrobras shares to extend declines by causing “confusion” and “uncertainty” for investors, said Christopher Garman, a Washington-based analyst at consulting firm Eurasia Group.

Brazil’s pre-salt oil discoveries are worth $4.30 a barrel, according to Credit Suisse Group AG analyst Emerson Leite. Transferring 5 billion a barrel of reserves would actually be worth about $20 billion, Leite wrote in a report.

Cabinet Chief Dilma Rousseff confirmed late yesterday the planned transfer of 5 billion barrel rights to Petrobras and said the $10 price per barrel was “just hypothetical.”

Assessment

The assessment of pre-salt reserves, will take months, if not years, Garman said. It involves a “downside risk” for shareholders given the government’s political incentive to overestimate the size of the reserves, Garman said. The government ultimately “will want to do it in a transparent way,” he said.

The government will issue bonds to pay Petrobras for new shares, three people familiar with the proposal said. The company will then use the bonds to buy rights to explore for as much as 5 billion barrels of oil equivalent in fields in the so- called pre-salt area, said the people, who asked to stay anonymous because the details of the plan aren’t public.

To contact the reporter on this story: Katia Cortes in Brasilia at at kcortes@bloomberg.net; Helder Marinho in Rio de Janeiro hmarinho@bloomberg.net.

Last Updated: September 1, 2009 10:14 EDT