Brazil May Drill More Wells for Oil Swap for Stock (Update1)

April 14, 2010, 1:16 PM EDT

By Peter Millard

April 14 (Bloomberg) -- Brazil may need to drill more wells to find the 5 billion barrels of oil reserves needed in a proposed swap for new shares in state-controlled Petroleo Brasileiro SA, an official said.

The two wells that Petrobras will drill for the government’s petroleum agency may not hold enough crude to swap, Florival Carvalho, the petroleum agency’s superintendent of planning and research, said today in Rio de Janeiro.

“We need to carry out studies to see if it gets to 5 billion barrels or not,” Carvalho told reporters at an oil conference. “In three to four months we will finish testing both of the wells.”

Brazil’s government is seeking to swap 5 billion barrels of oil in the pre-salt region for Petrobras shares. The company, based in Rio de Janeiro, plans to spend $200 billion to $220 billion to tap field including Tupi, the largest discovery in the Americas since Mexico discovered Cantarell in 1976.

Investors are more interested in how much the government will charge Petrobras for the reserves in the share swap than the agency’s exploration results, because the government will give Petrobras more reserves until it reaches the 5 billion barrels, Paula Kovarsky, an analyst at Itau Securities Equity Research, said today in a speech at the conference in Rio.

May Approval

Brazil’s senate will approve the oil-stock swap proposal after May 6, Senator Romero Juca told reporters in Brasilia yesterday. He is a leader of the ruling coalition in the senate.

Minority shareholders will be able to buy new shares in line with how much they currently own. Petrobras may raise $10 to $20 billion from minority shareholders, Kovarsky said.

Petrobras will finish testing the first well within two months and will start a second one in May, Carvalho said.

Petrobras preferred shares climbed 0.4 percent to 34.32 reais in Sao Paulo trading at 12:26 p.m. New York time. They have declined 6.5 percent this year, compared with a 3.4 percent gain for the benchmark Bovespa index.

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Source: http://www.businessweek.com/news/2010-04-14/brazil-may-drill-more-wells-for-oil-swap-for-stock-update1-.html