Petrobras to Pay Brazil $42.5 Billion for Oil Reserves

Petrobras has agreed to pay Brazil’s federal government $42.5 billion in new stock for deepwater reserves estimated to contain 5 billion barrels of crude. The deal has sparked much debate as many financial analyst say the price is more than what the reserves are worth. Petrobras announced that they will sell new shares to the public totaling $25 billion to support the deal. The price was the result of several months of negotiations and works out to $8.51 per barrel, considerably higher than market estimates of fair value between $5 and $6 per barrel for the deal. Revenue expectations for this well are very high and Brazil’s government is looking to this as the key to the country’s future. Petrobras’ shares have fallen in the last year as investors abandoned the company upon concern it would pay the government more for the oil reserves than they are worth. About 3.1 billion barrels of the reserves will come from the Franco field in the Santos Basin. The deal also includes 600 million barrels from the Iara field, 467 million barrels from the Florim field and 428 million barrels from Tupi Northeast. Also the Guara East field, which holds 319 million barrels and the Tupi Sul field which has 128 million barrels. Petrobras plans to disclose the terms of its share sale by Sept. 3.