Rio de Janeiro, November 19, 2009 � PETR�LEO BRASILEIRO S/A -
PETROBRAS, hereby communicates that its Board of Directors approved (i) the
creation of a committee formed by minority shareholders to accompany the
�Transfer of Rights with Compensation� process. (the �Transfer of Rights�)
and (ii) the utilization of federal debt securities by minority shareholders
for the proposed Petrobras� capital increase (the �Capitalization�).
Petrobras also takes this opportunity to clarify various aspects of
Bill 5941/09, which is currently under discussion in the National Congress. In
the proposed bill, the Federal Government is seeking two distinct
authorizations, namely:
1. authorization for the Transfer of Rights to Petrobras of the right
to explore and produce oil and natural gas in unlicensed pre-salt areas for
up to the maximum amount of 5 billion barrels of oil equivalent; and
2. authorization to subscribe and pay for Petrobras shares
(�Capitalization�).
If the Bill were approved, these authorizations would be of great
support to Petrobras, as the Transfer of Rights will allow the company
additional access to additional oil reserves, which are the primary asset of
any oil company. The incorporation of additional reserves of oil and gas to
the capital of Petrobras will create conditions for greater growth and
sustainability, resulting in added value for all shareholders.
The willingness of the Federal Government to subscribe additional
shares of Petrobras would enable the company to increase its capital base,
strengthening it to fulfill its business plan, which will expand further with
the opportunities afforded by the Transfer of Rights.
Transfer of Rights
The Transfer of Rights will be governed by contract between Petrobras
and the Federal Government, a contract between related parties. As such,
Petrobras recognizes the need for input from its minority shareholders, in
accordance with its Corporate Governance Guidelines, Thus Petrobras�s Board
of Directors approved today the creation of a Minorities Committee (Comit� de
Minorit�rios) comprised of the two Board members who represent the minorities
shareholders and the non voting shareholders, and also by an independent
member to be appointed. The Minorities Committee will be responsible for
accompanying the Transfer of Rights process and issuing an opinion in support
of the decision by the company�s Board of Directors.
The value of the Transfer of Rights with compensation will be based on
negotiations between the company and the Federal Government and supported by
technical reports produced by internationally renowned independent appraisal
firms to be hired by Petrobras and the ANP (National Petroleum Agency,
Brazil�s fuels regulator), the latter representing the Federal Government. The
Minorities Committee may also solicit an independent opinion.
Given the technical difficulties in defining the precise and correct
value of the exploration and production rights that are the object of the
Transfer of Rights (uncertainties surrounding the as yet preliminary
knowledge of the reservoirs, the most appropriate production assets, the
number of wells needed, the logistics to be employed, etc.), the draft bill
envisages a revision of the value of the transfer, which will be implemented
as greater knowledge of the various factors involved is acquired.
In view of the above, the rights to explore for and produce oil
(�Rights of E&P�) may not be used directly by the Federal Government in
the company�s capitalization, since legal restictions under the Brazilian
corporate law do not permit the revision of asset values used in capital
increases.
The solution proposed by the Federal Government would resolve this
difficulty, given that the proposed Transfer of Rights would permit a
subsequent revision of the values initially attributed to the Transfer.
If the proposed bill is approved, the following steps will be
necessary:
1) Defining the value of the Transfer of Rights:
a) once the areas that will be the object of the Transfer of Rights
have been defined by the Federal Government, the parties (the Federal
Government and Petrobras) shall conduct the necessary appraisals and
certifications. Among other factors, the appraisal should consider:
(i) the behavior of the reservoirs and the production curve;
(ii) investments (including wells, platforms, flexible lines, outflow
and logistics systems, etc);
(iii) operating or production costs;
(iv) the tax environment;
(v) the future oil price scenario; and
(vi) the discount rate to be applied to cash flow.
b) Based on the respective appraisal reports, Petrobras and the
Federal Government will negotiate the per-barrel price to be used when
defining the value of the Transfer of Rights. However, any such value
mentioned now may only be a numerical example or of a speculative nature.
2) Negotiating the Transfer of Rights agreement: Petrobras and the
Federal Government will negotiate the provisions of the Transfer of Rights
agreement which, among other matters, should include:
a) the amount and form of payment by
Petrobras to the Federal Government;
b) the rules for revising the value of the
Transfer of Rights, as example, the utilization of the same methodology
applied on the definition of the initial Transfer of Rights value;
Capitalization
The increase in capital will provide the
necessary strengthen for the company to carry out the role assigned to it
under the new regulatory framework. This role consists of:
a) obtaining funding for the investments
envisaged in its business plan, including those related to its role as the
sole operator in all the blocks under the production sharing agreement model,
with a minimum share of 30%;
b) obtaining funding to pay for the Transfer
of Rights with compensation and the possible price adjustments arising from
revision of the contract;
c) obtaining funding for those investments
allocated to the development and production in the Transfer of Rights areas;
d) optimizing its capital structure and
paving the way for new funding options, while maintaining optimum debt
levels;
e) maintaining the policy of contracting
critical resources for long term, thereby reducing costs due to increased
scale and facilitating financing for its suppliers.
If the proposed bill is approved, the
following steps will be necessary:
1) Convening an Extraordinary Shareholders
Meeting of Petrobras (ESM) to approve the private share offering. The ESM
will allow all shareholders to take part in proportion to their current
shareholdings. It is worth highlighting certain points related to the capital
increase:
a) the amount of the capital increase to be
submitted by the company�s Board of Directors to the ESM should take in
consideration the company�s capital needs;
b) the amount of the capital increase could
be announced as a range defined by upper and lower limits;
c) the allocation of the proceeds of the
capitalization must be made clear;
d) if not all shareholders exercise their
right to take part in the capital increase, resulting in unsubscribed shares,
those shareholders who exercised their rights in the first stage to will be
allowed to acquire these unsubscribed shares, in accordance with the new
shareholding proportions arising from the first exercise of rights;
e) The size of the capital increase will be
between (i) an amount equal to the price to be paid for the Transfer of
Rights and (ii) up to three times this amount.
f) At this moment, any amount mentioned for
Petrobras� capitalization should be considered as a numerical example or of a
speculative nature.
2) Convening a new ESM to ratify the capital
increase.
The company reaffirms that all shareholders,
(including all shareholders listed on foreign exchanges) will be assured
their proportionate share of preemptive rights in the capital increase, so
any dilution they may experience will only be a result of the individual
choice of the shareholder.
Pursuant to Article 9 of the proposed bill,
the Federal Government is authorized to take part in the capitalization,
paying for its participation with federal debt securities. It is worth noting
that Article 9 confers to the Federal Government an option to use government
securities for subscribing its capital.
The Board of Directors also approved the
utilization by the minorities� shareholders of federal debt securities for
the Petrobras� capital increase process similar of that usually acquired by
the company in its current operations. The securities which will be eligible
for use by all shareholders will be clearly defined and approved in the
notice that convenes the ESM.
In this case, and in accordance with
Brazilian Corporate Law, the securities used will be appraised and the
appraisal report will be subjected to the approval of the second ESM. If so,
only those shareholders with voting rights who did not use eligible
securities for the purpose of paying in their shares will be entitled to
vote.
The company will pay for the Transfer of
Rights with the proceeds from the capitalization. Depending on the amount of
the capitalization and the amount of subscription rights exercised by all
shareholders, the company may, among other options:
� pay for the Transfer of Rights with the
public securities from the Federal Government and retain the proceeds from
the minority shareholders in its cash position;
� pay for the Transfer of Rights with the
public securities from the Federal Government and part of the proceeds from
the minority shareholders, if the securities paid in by the Federal Government
are insufficient for said payment;
� pay for the Transfer of Rights with part
of the public securities from the Federal Government, the balance of said
securities plus the proceeds from the minority shareholders to be retained in
the company�s cash position.
Based on the above, any simulation of the
result of the capitalization is still mere speculation, given the unknown
variables, such as the degree to which minority shareholders exercise their
subscription rights. Although their preemptive rights are assured, it is not
known to what extent they will exercise them.
It is also worth emphasizing that the
E&P Transfer of Rights that are the object of this transaction will give
the company access to reserves, which are the most valuable asset for any oil
company, which will ensure the continued robustness and sustainability of its
operations and increase the company�s value for all its shareholders.
The company has been participating in a
variety of forums to discuss and to receive suggestions, seeking to ensure
the utmost transparency for both operations. It will strive to respect the
rights of all its shareholders, strengthening both Petrobras and the capital
market as a whole. To fulfill these intentions the company commits to:
� widely disclose any new and relevant
information regarding the two operations as soon as it is known, ensuring
transparency and equitable treatment for all of its shareholders and
investors;
� hire an internationally renowned company
to produce an appraisal on which the value of the Transfer of Rights will be
based;
� treat all shareholders equally, as is its
custom.
In addition, the company would like to
emphasize that it has been using various communications channels to explain
the impact of the changes on the company�s activities to its shareholders and
other stakeholders and available to all to explain the increase in capital
and Transfer of Rights operations and the possible effects of the proposed
new regulations on its operations. Accordingly, as of this date it is opening
a specific e-mail address (marcoregulatorio@petrobras.com.br) through which
shareholders and stakeholders can clarify any questions they may have related
to the new regulatory framework.
Finally, the main questions on the issue are
clarified in the Questions and Answers section of the company�s IR website
(www.petrobras.com.br/ri/english).
Sincerely,