Brazil Stretches Its Sea Sovereignty While Petrobras Offers US$ 64 Billion in Stock

Oil rig in Brazil As it seeks to increase control over its natural resources Brazil has just expanded the offshore area where drilling for crude or prospecting for minerals requires government authorization. 

Prospecting anywhere on the undersea continental shelf that extends from the South American country’s coast will now require government approval, even in areas that are beyond current sea borders, according to a Brazilian Navy order published in the official gazette, the Diário Oficial, this past September 3.

The continental shelf is the extended perimeter of a continent between the coastline and the oceanic abyss.

Brazilian president Luiz Inácio Lula da Silva has sought to increase control over offshore oil resources after state-controlled oil company Petrobras made discoveries such as Tupi, the largest find in the Americas since Mexico’s Cantarell in 1976.

Brazil is preparing a new sea-border expansion request to the United Nations after a 2004 proposal was rejected.

The UN generally recognizes a country’s maritime territory as the area within 200 nautical miles from the shore.

Public Share Offering

Petrobras, Brazil’s state-controlled oil and gas multinational, unveiled plans to sell up to US$ 64.5 billion of new stock, in one of the world’s largest public share offerings.

The transaction could be expanded to as much as US$ 74.7 billion if there is heavy demand, the company said. The money will fund the development of recently-discovered huge oil reserves off the coast of Rio de Janeiro.

Shares in Petrobras rose 4% in late afternoon trade in São Paulo. Petrobras stock is also traded in New York, Madrid and Buenos Aires.

The company said it would issue 2.17 billion common shares and 1.58 billion preferred shares. The price of the new shares will be announced on September 23.

A pubic share offer had been expected earlier this year but was delayed while a deal was sorted out over how many shares the Brazilian government would receive in return for giving Petrobras access to up to 5 billion barrels of oil.

Some investors have questioned the price of US$ 8.51 per barrel, but eventually agreed in the oil-for-shares swap, believing that 5 to 6 USD would have been fair.

International Finance Review in a release to its subscribers said that the figures of the offering made headlines, but “as investors sifted through the 620-page preliminary prospectus it became clear that what will actually reach the market is a far smaller amount. More importantly, while the number of shares held in the market will increase, the percentage of the company that is owned by the public is being reduced.”

Meanwhile OGX Petróleo & Gas Participações SA, controlled by Brazilian billionaire Eike Batista, fell the most in more than two months in São Paulo trading, 5.7%, as investors sold shares ahead of the equity offering from Petrobras.

The Ontario Teachers’ Pension Plan Board said in a filing that it cut its stake in OGX to 4.77% on September first after previously holding as much as 10.67%, according to data compiled.

Petrobras gained 4.4% to 28.80 Reais after losing 25% this year through now. The company is raising money to fund a US$ 224 billion plan to develop offshore fields and expand refineries. OGX, which doesn’t yet produce any oil, surged 20% in the same period.

Finance minister Guido Mantega said the Brazilian government will “act strongly” to prevent the national currency from appreciating too much because of a flood of US dollars into the country from the massive offering of state-run Petrobras.

Brazil’s real gained in the week for a fourth session and traded at its strongest level since December as investors positioned their bets for a rally for the currency because of dollar inflows.

Overseas investors normally buy two-thirds of share sales in Brazil, raising concerns of large capital inflows as fund managers exchange dollars for reais to buy the stock.

“Since we are getting closer to the offering, I believe it’s interfering with the exchange rate the past days or past weeks,” Mantega said in a conference call with reporters. “This is temporary and the government intends to act strongly” to prevent an appreciation.

MP

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