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24 Nov, 2008 04:25

Petrobras to continue emerging market energy rise despite credit crunch

The rising cost of capital and slumping global consumption threatens some of the world’s largest companies. Brazil’s Petrobras may have problems raising $600 Billion it needs to explore its newly discovered offshore oil fields.

Brazilian energy champion, Petrobras, accounts for over 40% of the country’s stock market. But, despite its record quarterly earnings, the shares of the main indicator of the Brazilian economy’s health are down over 60% since May, raising questions of how it will finance its future projects.

Like Russia’s Gazprom, Brazil’s Petrobras was once one of the darlings of emerging market investors. But the credit crunch – coupled with falling oil prices – turned it into one of the worst performers among the worlds top energy companies. Its management, though, says it knows how to make money even in turbulent times like these. The man responsible for making money at state-run Petrobras is its Chief Executive Almir Barbassa. He says cheaper oil means lower production costs:

“Having in mind that we have a very good project, huge oilfields to be developed, its much better to develop these fields that are going to produce up to 50 years in the future. It’s a lower cost.”

Last week, Petrobras said it found a new offshore oil reserve that holds up to 2 billion barrels of oil – enough to supply all of Brazil's needs for two and a half years. And experts like Konstantin Sonin, Professor at the New Economic School, say the reserves are what matters in crisis conditions, with developing oil companies having an advantage over their better known counterparts.

“Unlike many oil companies from the developed nations, relative to their size they have very huge oil reserves, so in the long run they are kind of more stable than some of the biggest names in the oil industry.”

And Petrobras – with over 100 production platforms and 15 refineries – is ready to strengthen its gas unit, with Almir Barbassa looking for expertise from countries like Russia:

“We have talked to different companies in Russia that have large experience in gas transportation, in the gas industry.  And the gas industry for us is very new.”

Over 80% of Brazil's current crude production comes from the Campos Basin, off the coast of Rio de Janeiro.

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