To fund the world's largest E&P initiative, Brazilian state-run oil company Petróleo Brasileiro S.A., Petrobras, (NYSE: PBR; PBRA) (São Paulo: PETR3; PETR4) has raised US$70 billion in what is considered to be the largest equity offering on record, catapulting the company to the fore of global capital markets.

In a global offering comprising approximately 2.3 billion common shares, including common shares in the form of American depositary shares, the South American oil giant sold approximately 1.8 billion new preferred shares at R$26.30 per share, and 2.4 billion voting shares at R$29.65 per share, according to a company statement. Common shares in the form of ADSs were offered at a price of US$34.49 per common ADS, and preferred shares in the form of ADSs (preferred ADSs were offered at a price of US$30.59 per preferred ADS. Petrobras may sell an additional 188 million shares by Oct. 24. 

Banco Bradesco BBI was lead manager of the offering. BofA Merrill Lynch, Citigroup, Santander, Morgan Stanley and Itau BBA were global bookrunners.

On Sept. 23, Petrobras had already received "more than enough investor interest" to seal the massive deal, the pricing of which occurred after trading hours that same day, according to a report by Reuters. Specifically, the record offering had total demand of US$140 billion, including US$98 billion in bids from existing shareholders, and US$42 billion from institutional investors, according to Reuters.

A deal so hefty could not come without a few bumps in the road, however. In a Sept. 23 report, Reuters noted that "many hurdles haunted the deal" in early 2010, which resulted in a domestic stock market overhang that led to more than a US$70-billion decline in the company's market value.

In April, Simmons & Co. International estimated that Petrobras would need funding beyond its own operating cash flow to finance its more than US$200-billion capital expenditure program through 2014.

By year-end 2010, Simmons & Co. said it expected to see "a brighter picture, including a stronger crude market, resolution of the political situation and removal of the overhang associated with Petrobras' pending equity issuance. "After this point, investors will likely once again focus on the value enhancement to come from the company’s leading position in the Brazilian pre-salt play."

Fast forward to September and it appears that many investors have refocused on the promise of Petrobras' pre-salt upside in one of the most preeminent offshore sweet spots. 

"Petrobras' ADSs are up 3.3% on strong growth prospects, as it prepares for a massive share offering of at least 3.76 billion shares, netting US$79 billion if additional shares are issued to meet strong demand," Standard & Poor's oil and gas analyst Tina Vital said in a Sept. 23 equity brief.

Brazil's government purchased approximately US$43 billion in Petrobras stock in exchange for rights to an impressive 5 billion barrels of oil in the deep waters off the southern coast of Brazil. The Brazilian government owns more than 50% of Petrobras' voting shares. 

In 2009, Petrobras announced plans to ramp up its efforts to become a leading net oil exporter in the coming years. "We are planning to add production of more than 2 million barrels equivalent per day by 2020," Jose Sergio Gabrielli de Azevedo, president and chief executive of Petrobras, said at the American Association of Petroleum Geologists' International Conference and Exhibition in Rio de Janeiro in November 2009. "We will go from 2.7 million BOE per day today to 5.7 million BOE a day by 2020."

In the past year alone, Petrobras' domestic production totaled 2 million barrels a day, led by the 3.5-billion-barrel Roncador and 2-billion-barrel Marlim fields in the Campos Basin.

Notwithstanding the country's pre-salt potential, estimated by the Agencia Nacional de Petroleo (ANP), Brazil's petroleum regulatory arm, at 80 billion barrels in early 2010, the country will barrel in billions from the oil and gas finds already dotting its offshore basins. In the Santos Basin's pre-salt pole, the Tupi accumulations discovered by Petrobras hold recoverable volumes estimated between 5 billion and 8 billion barrels of oil equivalent (BOE). An additional find, Iara, is estimated to hold as much as 4 BOE. Guara and Jubarte Field's pre-salt area in the Campos Basin also contain as much as 2 BOE, respectively. Other Santos Basin reservoirs are being assessed by Brazil's petroleum authority, the Agencia Nacional de Petroleo (ANP).

In 2009, Gabrielli conceded that Petrobras' growth rate was exceptionally large at 75%. "It's an amazing challenge that we have," he said. To meet it, Petrobras expects to spend a total of US$224 billion over the next five years.

Continue reading about Brazil in the February 2010 issue of Oil and Gas Investor, by Peggy Williams, director, unconventional resources.