Brazil has a sunken-treasure problem. The discovery three years ago of a huge offshore stash of oil unleashed a gusher of nationalist euphoria. At somewhere between 9 billion and 15 billion barrels, it was the largest find in the Western Hemisphere in more than a quarter century. President Luiz Inácio Lula da Silva hailed the find as a ticket to Brazil’s “second independence,” and called on the country’s legislators to tighten state control over the oil industry.
Since then, things have become more difficult. Brazil’s treasure lies deeper (4.5 miles) and farther from shore (200 miles) than any oil being commercially exploited today. To tap that undersea wealth, state oil company Petrobras says it needs cash up front: some $224 billion over the next five years. It has planned a massive stock offering for September. Problem is, the complicated financial transaction will only add to Petrobras’s already heavy debt load (34 percent of net assets), which could move ratings firms to downgrade the company. That would drive up borrowing costs and sour the deal. Brazil could share the burden by calling on international oil majors as risk investors, but that would mean easing its grip on the industry. In the run-up to the Oct. 3 presidential elections, that’s not happening.