Petrobras Sees Oil Price Rising Amid Middle East Instability

Petroleo Brasileiro SA (PETR4) expects oil to keep rising in coming years after conflicts in Libya and across the Middle East sent the price to above $100 a barrel, Chief Financial Officer Almir Barbassa said.

Crude, which gained 0.8 percent to close at $104.79 a barrel in New York yesterday, is unlikely to drop back to the levels it traded at before the conflict in Libya, Barbassa said. Crude averaged about $81 a barrel in the year through mid- February, when conflicts escalated in Libya, Bahrain and Yemen.

“The price floor for oil has increased,” Barbassa said yesterday at the Bloomberg Brazil Economic Summit in Sao Paulo. “The trend is for rising prices.”

Oil has surged 24 percent since mid-February and touched a 29-month high on March 7 amid concern that escalating unrest in Libya and the Middle East would further cut output. Oil exports from Libya, home to Africa’s largest reserves, may be curbed for months because of sanctions and damage to production facilities, the International Energy Agency said March 15.

Crude for May delivery declined 63 cents, or 0.6 percent, to $104.16 a barrel at 11:10 a.m. on the New York Mercantile Exchange.

Higher prices come as Rio de Janeiro-based Petrobras, Brazil’s state-controlled oil producer, revises its five-year investment plan to include deepwater fields it bought from the government last year as part of a $70 billion share sale, the world’s largest. Petrobras will spend as much as $10 billion in five years to explore and develop the fields, where it will produce up to 5 billion barrels of crude, Barbassa said in a Jan. 14 interview.

‘Boom Time’

“Now is a boom time for integrated oil majors,” Gianna Bern, president of Brookshire Advisory and Research, a Chicago- based risk-management adviser to oil producers, said in a phone interview. “If you’re in the exploration and production part of the business, now is the time to get the high-cost, higher-risk projects off the drawing board and into production.”

Petrobras based its $224 billion investment plan for 2010 to 2014 on an average oil price of $80 a barrel. Going forward, oil is likely to stay above $85 a barrel, Chief Executive Officer Jose Sergio Gabrielli said yesterday at a conference in Uruguay.

The company’s cash holdings rose to $35 billion from $27 billion at the start of the year, Barbassa said yesterday.

2015 Payout

Rising prices carry risks for Petrobras because it may prompt the government to claim additional payments for oil rights it transferred to the company in exchange for shares, Nelson Rodrigues de Matos, an analyst at Banco do Brasil in Rio de Janeiro, said today in a telephone interview.

Petrobras paid $42.5 billion in shares and cash for the right to produce 5 billion barrels. They will revise the value of the barrels in four to six years after declaring the fields commercial, Barbassa said.

The company will have to pay an additional $17.5 billion if the government uses $100 a barrel to calculate the value of the reserves in the revision, according to calculations by Credit Suisse made Oct. 12 after the transaction was finalized.

“It is still unclear at what level oil prices will be by 2015,” Barbassa said. “All I can say is that the price adjustment is already agreed, and that we will fulfill the contract.”

The revision will be based on the 18-month NYMEX futures contract and production costs. Before today, the contract has risen 32 percent since Sept. 1, when the contract was signed.

To contact the reporters on this story: Lucia Kassai in Sao Paulo at lkassai@bloomberg.net; Peter Millard in Rio de Janeiro at Pmillard1@bloomberg.net

To contact the editor responsible for this story: Jessica Brice at jbrice1@bloomberg.net

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