Petroleo Brasileiro SA (NYSE: PBR), or Petrobras, is delaying its monster offering.  Reports from Brazil say its huge $25 billion share sale is now expected to take place in September rather than July as the company awaits certification of the government owed reserves by the National Petroleum Agency .  The certification is expected to occur in August rather than this month, and that is the cause for delay.  At least it is part of the delay.

There is a larger issue  besides just the delay.  The size was touted as $25 billion recently.  Before it was potentially going to be a $50 billion offering and perhaps one of the  largest offerings in history.  A $25 billion deal, even in today’s standards, is still massive.  Still… it was half.

The prior approval was being touted as around “up to about $80 billion” in total.  The good news is that this still fits within the ambitious $220+ billion 2010 to 2014 capital spending plan touted by Petrobras.

This delay could be a real blow to Petrobras’ plans to reach billions of deepwater barrels of oil.  Concerns about the BP disaster is a factor.  This is changing how all deepwater projects are being viewed globally.  It was an issue during the original share sale as BP’s oil spill was getting worse.  It is definitely as issue today.  It is giving environmentalists the upper hand.

On last look, Petrobras had ruled out additional borrowings to finance its cap-ex investments because it does not want to add leverage on the back-side of books via debt.  That might put its credit ratings at risk.

Lastly, there is politics involved here.  This is effectively a sale by the government to get assets out of the government.  If you think U.S. or European politics get in the way, Latin America is an entirely different game.  Many contracts in Latin America are merely starting points for future negotiations.

JON C. OGG

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