In a deal serving the interests of both parties, the Brazilian government is planning to effectively swap unlicensed areas of the country's oil-rich offshore subsalt zone for more equity in state-controlled Petrobras. As part of broad oil-sector reforms presented by President Luiz Inacio "Lula" da Silva late last month, Brasilia has proposed offering Petrobras up to 5 billion barrels of oil equivalent reserves, including some in areas contiguous with licensed blocks that would otherwise be subject to a unitization agreement Petrobras will in turn pay for the reserves by issuing new shares, of which the government will aim to buy the largest chunk (PIW Aug.l7,pl). Many details still have to be worked out, including an independent estimate of the value of the reserves based on oil price projections, and the likely cost and timetable of development. Brazil's oil regulator is also planning to collect more information on the areas, based on its own seismic and drilling activity. By law, Petrobras must allow minority shareholders to participate in the stock offering - which will raise additional cash for the company - but it is assuming that not all will do so. The government will thus increase its current equity share in Petrobras of 32.2%, plus 7.6% it holds through the Brazilian Development Bank's investment holding company. Petrobras will hold a shareholders meeting to vote on the arrangement, but this will be a mere formality, given that the government holds 55% of the company's voting shares.
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