Brazil’s Petroleo Brasileiro SA (NYSE: PBR), commonly called Petrobras, has approved a plan it announced last September to spend $224.7 billion developing an estimated 5 billion barrels of reserves. The spending, which will happen between now and 2015, is the largest planned capex spending in an industry used to spending huge sums.

Petrobras raised about $70 billion in a secondary offering last year, including about $43 billion in new shares to the Brazilian government for the rights to produce oil from the six fields.

The company expects to spend about $55 billion in 2011, slightly less than the $57 billion it spent in 2010. There could be some good news in this planned spending for drilling companies like Noble Corp. (NYSE: NE), Diamond Offshore Drilling Inc. (NYSE: DO), and Transocean Ltd. (NYSE: RIG). Services companies like Halliburton Co. (NYSE: HAL), Baker Hughes Inc. (NYSE: BHI), and Schlumberger Ltd. (NYSE: SLB) could also see a boost. Then again, maybe not.

A lot depends on how Petrobras chooses to proceed. The company announced a tender in June for construction of 21 new drilling rigs that are to built in Brazil. The idea of course is to boost the Brazilian economy by providing jobs. Seven rigs are already under construction in Brazil.

It’s also possible that Petrobras will withdraw the tender, as it did recently with a request for new ships. The company decided the shipbuilding bids were too high.

Earlier this week Petrobras extended its contract for two Diamond semi-submersible rigs in exchange for a $10,000/day drop in the the rental price. Diamond, no doubt, is looking ahead for a bigger piece of the action in the $224.7 billion spending.

Leasing rigs would almost certainly be cheaper than building and maintaining new rigs that Petrobras owns. But there’s always a political dimension to spending figures of this size, and the government may push for more domestic purchasing.

Either way, the company thinks it can nearly triple its production, from around 2 million barrels/day to 6 million by 2020. That is both an aggressive and very expensive plan.

Paul Ausick

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