Lula's Government Has `Final Word' on Price of Oil for Petrobras Swap

Brazilian President Luiz Inacio Lula da Silva’s administration will have the “final word” on the price of oil reserves that Petroleo Brasileiro SA will buy from the government, Energy Minister Marcio Zimmermann said.

The government may set a different price on the deepwater reserves than is recommended in an audit by the National Petroleum Agency, known as the ANP, Zimmermann said today in a telephone interview from Guarulhos, outside of Sao Paulo.

“There’s a process in which the government will give the final word,” Zimmermann said. “It will be a price that the government considers fair with the national interest.”

As part of new oil regulations introduced by Lula late last year, the government plans to swap as much as 5 billion barrels of deepwater reserves in the so-called pre-salt area for stock in state-controlled Petrobras. The value of the oil will determine the size of the company’s planned share sale this year.

The swap and offering are part of plans to finance $224 billion of spending to develop fields including the offshore Tupi, the Americas’ largest oil discovery since Mexico’s Cantarell in 1976.

Petrobras may need to pay the government as much as $8 a barrel for reserves, or up to $40 billion, Credit Suisse analysts led by Emerson Leite said in a June 30 investor note. Earlier this year, the bank predicted Petrobras would pay $5 to $6 a barrel for the oil, or as much as $30 billion in new stock.

‘Government Property’

“You’re talking about a publicly traded company that the government has a stake in; on the other hand, you’re dealing with government property,” Zimmermann said. “It’s natural that, within reason, the government would defend its interest.”

The ANP said on June 22 it hired Gaffney, Cline & Associates to assess how much the reserves are worth by the end of August. Petrobras later that day delayed its share sale until September, saying it needed to wait for the valuation of the reserves before the public offering.

“If the Lula administration were to increase the value of those barrels significantly above what the auditor’s price assessment is, the participation in the share issuance will drop,” Christopher Garman, the Eurasia Group’s director for Latin America, said in a telephone interview. “Investors are looking to this assessment as a reference.”

Petrobras’s press office in Rio de Janeiro declined to comment today on the price of the reserves.

$25 Billion

Shareholders in a meeting last month authorized a capital increase of as much as 150 billion reais ($84 billion), including stock to be issued in exchange for the reserves. Petrobras has said it expects to raise as much as $25 billion from minority shareholders.

Petrobras fell 27 centavos, or 1 percent, to 26.84 reais in Sao Paulo trading as of 5:08 p.m. today. The stock has declined 27 percent this year, more than the 9.1 percent drop for Brazil’s benchmark Bovespa index.

To contact the reporters on this story: Maria Luiza Rabello in Brasilia at; Iuri Dantas in Brasilia at

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