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Petrobras CEO Upbeat on China Loan Deal

05-19 18:46 Caijing

In Beijing with Brazil's president, Petrobras chief José Sérgio Gabrielli hammered out a loans-for-oil agreement with China.

By intern reporter Lige Shao and staff reporter Chen Zhu

(Caijing.com.cn) Petrobras CEO José Sérgio Gabrielli and China Development Bank officials were hammering out details of a massive loans-for-oil deal May 19 as part of an effort to deepen Sino-Brazilian cooperation during a Beijing visit by Brazil's President Luiz Inácio Lula da Silva.

Gabrielli was a member of a business entourage accompanying Silva on his second visit to China, which began May 18.

In an exclusive interview with Caijing before the talks with officials from the Chinese policy bank, the Petrobas chief said Brazil is looking at a long-term relationship.

"We will have a stable, almost risk-free flow of oil in the future," Gabrielli told Caijing. "If we develop a long-term strategic alliance for delivering our oil, it's good for us and for the countries that are buying from us."

The state-owned but market-run Brazilian oil giant formally known as Petroleo Brasileiro SA has turned to China to finance a US$ 174.4 billion plan to develop its newly discovered pre-salt oil fields – lying beneath salt formations off Brazil's coast -- between 2009 and '13. The plan calls for spending US$ 28.6 billion in 2009 alone.

These figures stand a head taller than the company's previous investment plan for 2008-'12, which totaled US$ 112.4 billion.

Now, if all goes according to plan, Petrobas will increase its daily oil production by 2020 to 3.4 million from 1.9 million barrels, while raising oil and gas production to 5.7 million from 2.4 million barrels a day. In exchange for a US$ 10 billion loan from the Chinese bank, China would receive up to 200,000 barrels of oil a day.

Gabrielli said the money needed this year would include US$ 12.5 billion from the Brazilian Development Bank, US$ 6.5 billion from a syndicate of six international banks, and US$ 7 billion in cash. He estimates if oil prices are only US$ 37 a barrel, the company can generate US$ 10 billion from operational cash flow this year – more than enough to finance the 2009 scheduled investment.

Taking a conservative view on oil prices, Gabrielli said, "We are working with oil prices of US$ 45 a barrel in the long run, as a stress test for our portfolio. We think that at US$ 47 a barrel, we will achieve a positive net present value for our investment."

The deal is reminiscent of an agreement between China and Russia in February. China agreed to provide a total US$ 25 billion to Russian oil companies in exchange for 15 million metric tons of oil annually for the next 20 years.

The Petrobas CEO distinguished his proposed deal, saying Brazil is not seeking securitization or any type of pre-arranged oil sale. Also, unlike the Russian deal, which was delayed by disputes over interest rates, Brazil and China are grappling over how to specify collateral for contract terms.

But like the agreement with Russia, Brazil's turn to China for financing underscores China's rising influence as one of the few countries still growing during the global slowdown, and flush with nearly US$ 2 trillion in foreign exchange reserves.

Meanwhile, as an increasingly resource-hungry country that's now second only to the United States in oil consumption, China is seeking new ways to ensure resources for growth, relying on resource-rich countries such as Brazil and Russia.

Sino-Brazilian trade has exploded since the Brazilian president's first trip to China in 2004. In the first quarter 2009, China surpassed the United States to become Brazil's largest trading partner.

Sino-Brazilian relations still have much room for growth, Gabrielli said. Brazil has "expertise in offshore and deep-sea technology. China has good experience in producing on-shore drilling facilities. We can combine the size of the domestic market in China with our production in Brazil. We share many complementary points," he said.

While bilateral trade jumped 63.2 percent in 2008 from the previous year, however, it accounted for less than 3 percent of China's foreign trade, according to a Xinhua news agency report May 18.

Gabrielli is also pushing for Chinese companies to produce in Brazil.

"We want (Chinese manufacturers) to move to Brazil," he said. "We don't only want to be an oil export company. We want Brazil to develop supply chains in all sectors and reap the full benefit that oil companies reap."

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