Petrobras announced that its Board had successfully approved the company’s planned five-year $224 billion investment strategy. The state owned oil giant’s investment budget is way above the $200 billion to $220 billion the company had released earlier this year as its planned investment spending fund. In its five-year plan covering 2009/2013, Petrobras had released a figure of $174.4 billion in the previous financial year, 2008/2009.  

With the earmarked ambitious, massive investments budget, the company so far stands out as one of the few willing major oil companies ready to spend on major investments amidst the lower global oil prices and the global economic uncertainty, while at the same time overlooking the technical concerns that have come up due to BP’s deepwater crisis in the US Gulf of Mexico. In the strategy plans, Petrobras will use the huge capital overheads to principally develop Brazil’s considerable offshore oil reserves in the presalt region.

The presalt region is expected to be a costly and complex undertaking given the depth of the offshore reserves to be explored. The presalt region was discovered under a deep layer of salt in the Santos Basin off the Sao Paolo and Rio de Janeiro coasts. The difficulty in the exploration will arise from the fact that the oil reserves are estimated to be more than 2000 meters below water and an extra 5,000 meters under the sand, rock and a shifting salt layer.

Other than the drilling challenge, the exploration as well posses financial challenges, funds needed to pay for the company’s aggressive development targets, given the fact that it is near the 35% net debt capitalization limit necessary to maintain its investment-grade credit rating. According to Fitch Ratings, the credit-ratings agency, Petrobras might face a greater risk of a downgrade than an upgrade if its leverage increases more than expected, said the agency’s director, Jose Luis Villanueva.

However, reports indicate that Petrobras is working towards reducing its leverage. With the planned investments cost out, Petrobras may now move forward with a planned share offer, part of the Brazilian government’s complex capitalization plan for the oil giant. Industry pundits have placed the share offer at a value of between $50 billion and $60 billion, expected to be the largest such shares sale in the world.

The release of the company’s strategic five year plan was initially delayed as Brazilian lawmakers deliberated over the revamping of Brazil’s oil laws president Luiz Inacio Lula da Silva had proposed.

23 June 2010.