Mike DeLucchi's Blog

A record setting stock of $70 billion has been taken up, as of September 24th by Petrobra, despite the large amount of doubt posed by investors regarding this decision. “Of that total, almost $43 billion-worth of the shares will be taken up by the government in return for giving Petrobras the right to develop 5 billion barrels of reserves” (The Economist). The issue derived from the shares is significant, as Petrobra is looking to utilize the capital to exploit newfound oilfields off Brazil’s coast. Petrobra is looking to increase its output to 5.4 billion barrels a day by the year 2020. If this were to occur, the brazilian government will look to use its incoming revenue to contribute in transforming Brazil in to a developed country. This would include the funding to supply education, welfare, and infrastructure. Although, with all the money being outputted towards this massive $224 billion project, investors are becoming skeptical in purchasing shares, as there is a widespread beleif that Petrobra will be facing a large debt in the near future. However, Petrobra believes there are still a greater number of oilfields left to be discovered off shore. Which, is why I believe the most logical decision would be to continue its drilling, while attempting to sell more shares to private investors. Thus, the government cannot invest in a greater amount of stocks, and Petrobra can be its own sole operator. Also, with the continuation of Petrobra’s operations, the brazilian economy will benefit with respect to the growth of its ship-building and oil service enterprizes.

Full article: http://www.economist.com/blogs/americasview/2010/09/petrobrass_record_share_issue