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• Sustainability Report
  • Mission, Vision, Vision and Values of Attributes
  • Message from the CEO
  • About the Report
    • Sustainability Report
  • Corporate Performance
    • Profile
    • Corporate governance
    • Strategy
    • Intangible assets
    • Our stakeholders
    • Responsibility for products
  • Operational Performance
    • Our activities
  • Results and Contributions to Society
    • Economic and financial results
    • Contributions to society and indirect impacts
  • Employment Practices and Human Rights
    • People management
    • Human rights
  • Environment
    • Environmental management
  • Social Balance According to the IBASE Model
  • GRI Table of Contents
  • Independent Auditors’ Limited Assurance Report
  • Annexes
• Financial Analysis and Financial Statements
  • Financial Analysis
  • Financial Statements
  • Notes to the Financial Statements
  • Annexes

Profile Management Awards Addresses Expedient

Strategy

The world's largest capitalization

On September 24, 2010, Petrobras raised R$120.2 billion in the largest equity issuance in the world's history. The transaction increased the company's value sharply. On that date, Petrobras reached $223 billion in market value and ranked second among the oil and gas companies in the world.

The funds derived from the capitalization allowed Petrobras to pay the Federal Government R$74.8 billion to secure the right to explore and produce, for 40 years, extendable for another five years, five billion barrels in seven wells in the Pre-Salt layer − an amount equivalent to a third of its current reserves.

The capitalization also lowered Petrobras' debt-to-equity ratio to 17%, from 31% before the offer. The improved capital structure is essential for Petrobras to proceed with the investment program that was designed to change the company's production level.

The investments will enable oil and gas output to grow to 3.9 million barrels of oil equivalent per day in 2014, 51% more than the 2.58 million produced in 2010 and the most significant increase among all major oil companies in the world. Investments of $224 billion will be made in this period, especially on making it feasible to explore the wells nestled in Pre-Salt layer − the new frontier that will get $33 billion in assets and is considered the biggest oil discovery made in the Southern Hemisphere in the last 30 years.

Nevertheless, the equity issuance has not gone unquestioned. Some of the issues raised were related to minority interest, others to the share value slump allegedly caused by the capitalization due of a seemingly excessive involvement of the Federal Government, and some to delays in the process. Concerning these issues, Petrobras has positioned itself through its communication areas, publishing needed clarifications, such as:

Slump in stock value − In addition to the announcement of the capitalization, which would naturally cause a fall in any company's stock value, 2010 was marked by some peculiarities, such as the delayed effects of the international crisis that devalued many assets; the disaster in the Gulf of Mexico, which affected oil companies in particular; and the electoral process in Brazil, the complexity of which caused a delay in the completion of the public offering. On the other hand, there were substantial spikes in Petrobras' stock value in late 2010 and early 2011 which offset some of the losses incurred during the year.

The role of the Government − The company's capitalization process was carried out pursuant to the principles of good governance and transparency and complied with all of the market rules, including the provision of information and clarifications. The final terms of the transfer of rights agreement were submitted to Petrobras' decision-making bodies in accordance with its model of Corporate Governance, including the Minority Committee. This ensured transparency and fairness to all shareholders.

To determine the price of the barrel, Petrobras submitted to the Brazilian Presidency's Chief of Staff office and to the Finance and Mines and Energy Ministries, the preliminary assessment prepared by independent certifier DeGolyer and MacNaughton, hired by the company, which, together with an assessment commissioned by ANP, served as the parameters to set the price for the Transfer of Rights.

Delay − Given the importance and scale of transfer of rights and capitalization operations, unprecedented for Petrobras and for the market itself (the planning of which was contingent on several factors, including external to the company), it is natural that preparing and implementing such transactions would initially involve the assessment of several scenarios and alternatives. It was due to an extremely important factor for these assessments - the pricing of the barrel for the transfer or rights − that the company rescheduled the public share offer.

Changes in the regulatory framework

The discovery of these reserves caused the Federal Government to change rules for oil and natural gas exploration and production in the Pre-Salt cluster areas, including regulations related Petrobras' equity issuance. The main reason behind this is that the regulatory framework in place, drawn up in 1997, was based on a scenario of economic instability and high risk and sought, through the concession system, to afford returns to those who take the risk on. These conditions are very different from those involved in Pre-Salt exploration.

With the new regulatory framework, Brazil now has three oil and natural gas exploration and production regulation systems: transfer of rights, concession, and production sharing. The transfer of rights agreement was approved for Petrobras and entitled it to engage in oil and natural gas exploration and production (E&P) activities in certain areas of the Pre-Salt. Pursuant to the agreement, the company can produce up to 5 billion barrels over a period of 40 years, extendable for another five, upon the payment of R$74.8 billion, which has already been made.