Petroprom

Petrobras: Petrobras is shaping up more like Gazprom than Exxon Mobil. By overpaying for 5 billion barrels of reserves, the Brazilian state-controlled oil group is transferring up to $17 billion of value to the government, whose stake will also rise. The company is looking more like an instrument of the state than a guardian of shareholder interests.

A year after the capitalization plan was first announced, Petrobras shareholders are finally getting some clarity. That earned a relief rally in the company's beaten-down shares on Thursday. But the news overall isn't good.

At $8.51 per barrel, Brazil is charging its captive oil company well over the odds for the new reserves. An external certifier will have a shot at justifying that valuation, but a more reasonable figure may be as little as $5 a barrel. That means the government will gain at the expense of Petrobras shareholders. The deal will require the issuance to the government of $42.5 billion in new shares.

Private investors, meanwhile, will probably see their economic interest - currently more than two-thirds - decline because they won't be willing to buy enough additional new shares to maintain their stake. A figure more like $25 billion of private cash is doing the rounds, which would bring their interest down below 60 percent.

Of course Petrobras was never a pure private sector play. The government, after all, owns a majority of its voting stock. Losing out in the oil-for-shares swap serves to remind shareholders of that. It's risky, however, for Brasilia to push Petrobras shareholders around too much. Even with fast rising cash flow, it will need around $58 billion by 2014 to meet its ambitious capital spending goals. Raising that cash should be a breeze for a company that expects to double output by 2020 - a growth outlook unmatched by any other big oil company. But investors will lose enthusiasm if they perceive that their interests come a distant second to the government's.

Russian state-controlled Gazprom trades at just 5 times estimated 2010 earnings - at the low end of its peer group and less than half Exxon's multiple. Petrobras is currently somewhere between the two. Private sector owners will be hoping the Brazilian government, which after all benefits if the company's valuation rises, starts distancing itself more clearly from the Gazprom model.