Does Petrobras Need More Capital? (PBR)

Petroleo Brasileiro S.A. (NYSE: PBR), or Petrobras, raised $1 billion in a new note offering this morning for its Petrobras International Finance Co.  Or did it?  We originally had this listed as being an offering of about $500 million earlier, yet now the offering may be as much as $1.2 billion.

We already saw S&P come out with a report showing that it was assigning a “BBB-” rating to a senior unsecured note offering.  But more than once today there was word that the note offering was being increased to high demand.

The newer notes are due in 2019, but this is used to extend the debt maturity ladder and will be used to pay down or retire shorter maturities.

Petrobras has outlined solid cap-ex plans for next few years, so while it might not seem necessary for an oil giant to actually need the capital it might actually need that capital to maintain healthy ratios.  If its rating is barely investment grade, the company may choose to bolster its capital even more against future expansion capital needs. If companies can borrow somewhat on the cheap now, the memories of just a quarter or two ago when capital markets were closed off or ridiculously expensive are not forgotten.

Much of the new expansion projects are not on line and the company had to work through some internal issues.  It has also taken out a large deal with China.  And how many oil executives have been great forecasters of oil prices out into the far future?

Petrobras shares are now about 6% cheaper than when we said oil would have to get north of $80.00 for us to endorse prices north of $50.00.  That now leaves more of a gap to the upside for investors if shares stay down here around the $40.50 mark.

Jon C. Ogg
July 1, 2009