Jan. 28 (Bloomberg) -- Petroleo Brasileiro SA, Brazil’s state-controlled oil producer, put off plans to sell bonds because the cost for borrowing on international markets is “too expensive,” Chief Executive Officer Jose Sergio Gabrielli said.

Petrobras, as the Rio de Janeiro-based company is known, has no need to raise more funds in 2009 after securing $17.5 billion in financing from Brazil’s state development bank and other lenders, Gabrielli said.

“We want the financial market to adjust the costs to the risks Petrobras has,” Gabrielli, 59, said in an interview with Bloomberg TV in New York yesterday. “Petrobras’s risk curve needs to be more realistic than it is today. We need to observe the market conditions and go to the market when they are more favorable.”

Borrowing costs have climbed after the global credit crisis led investors to shun emerging-market debt and oil slumped 72 percent from a record $147.27 a barrel on July 11. Petrobras is planning to invest $174.4 billion over the next five years to develop the Americas’ largest oil-field discovery since 1976 and double output.

Latin America’s largest publicly traded company would have to pay the most in five years to borrow on international bond markets. Petrobras’s 5.875 percent bonds due in 2018 yield 5.05 percentage points over Treasuries, more than on any bond the company sold since June 2003.

‘Too Expensive’

“The market conditions nowadays in the secondary market for Petrobras are too expensive,” Gabrielli said. “We don’t need more funds. We can wait as much as we need.”

Gabrielli denied a Dow Jones news agency report yesterday that the company might sell $1.5 billion of bonds in the first quarter.

Petrobras will borrow $5 billion through a bridge-loan from banks to fulfill its financing needs this year, Chief Financial Officer Almir Barbassa said in a separate interview in New York. The oil company agreed to repay the banks through the sale of dollar-denominated bonds in the next two years, Barbassa said. The timing of any sale would depend on the banks’ recommendation and costs, he added.

“I have no commitment but of making $5 billion in two years,” Barbassa said.

Petrobras also arranged a $12.5 billion loan from the state development bank, known as BNDES, to cover 2009 financing needs and has $2.5 billion in pre-funding from 2008, company officials said in a presentation yesterday in New York.

Shares Rally

Petrobras’s preferred shares, the most-traded class of stock, rose 5.4 percent, to 25.20 reais in Sao Paulo. The yield on Petrobras’ notes climbed 8 basis points to 7.64 percent, according to Bloomberg data. The bond’s price dropped 0.44 cent to 88.57 cents on the dollar.

Petrobras aims to double output and develop the offshore Tupi field, the Americas’ largest oil-field discovery since Mexico’s Cantarell find in 1976. The company is increasing investment while rivals such as ConocoPhillips, the third-largest U.S. oil company, are cutting jobs and reducing spending plans after oil fell.

Petrobras may be the “best-positioned” major oil company in the world once energy prices rebound, Goldman Sachs Group Inc. analysts led by Arjun Murti said today in a report.

Gabrielli said the company assumes a bottom price for oil of $37 a barrel this year and $40 a barrel in 2010. He expects prices to start recovering in 2011.

Crude oil for March delivery fell 3 cents to $41.55 a barrel as of 10:24 a.m. on the New York Mercantile Exchange.

‘Aggressive’ Projects

“I like that they are aggressive because at least they have physical projects to work on,” Mark Corigliano, a portfolio manager at Proxima Alfa Investments USA LLC, said in an interview in New York. “Other companies can’t be so aggressive because they don’t have this inventory of projects.” Corigliano has $275 million under management in the Proxima Alfa Anglian Equity Fund and owns 300,000 Petrobras preferred shares.

Petrobras is holding off selling bonds while Petroleos Mexicanos, Mexico’s state-owned oil company, taps international debt markets.

The Mexico City-based company sold $2 billion of 10-year bonds yesterday priced to yield 8.25 percent, or about 5.71 percentage points above comparable-maturity U.S. Treasuries. Pemex bonds are rated Baa1 by Moody’s Investors Service, the same as Petrobras’s bonds. Standard & Poor’s rates Pemex bonds BBB+, the third-lowest investment grade and one level above Petrobras bonds.

“Pemex has the ability to issue,” Gabrielli said. “We don’t need to issue in 2009.”

BNDES Guarantees

For 2010, Petrobras needs $18.9 billion in financing, and it has guaranteed $10 billion from BNDES, according to the company’s presentation.

“If oil prices do not go up, I think next year at this time we will likely see a decrease in their spending plans,” Corigliano said.

To contact the reporter on this story: Fabiola Moura in New York at fdemoura@bloomberg.netKarla Palomo in New York at kpalomo@bloomberg.net.

Last Updated: January 28, 2009 16:24 EST