Petrobras' Offering Will Be a Humdinger

The oil industry continued to make news during the Labor Day weekend, with much of it coming from the Gulf of Mexico. The giant blowout preventer from the BP (NYSE: BP) and Transocean (NYSE: RIG) rogue well was hoisted to the surface for examination, and a probe began into Mariner Energy's (NYSE: ME) platform fire.

But more significant events happened to the south, where Brazil's state oil company, Petrobras (NYSE: PBR), finally announced plans for what is shaping up to become the world's biggest stock offering. Indeed, as The Wall Street Journal noted, the 3.17 billion shares the company intends to offer could bring in as much as $65 billion. If the sale is particularly popular, the addition of another 564 million shares could increase that amount by $10 billion.

The offering was expected earlier, but was slowed by squabbling between Petrobras and the Brazilian government over how to handle an exchange of Petrobras shares for state-owned oil. Last week's settlement involved a grant to the government of $42.5 billion worth of Petrobras shares for the right to produce 5 billion barrels of government-owned oil.

As such, Petrobras will pay an average of $8.51 per barrel for the oil. In reality, however, because the company will be exempted from a special participation tax on the oil, its average price will be closer to $5.20 per barrel.

Part of the goal of this capital-raising is to help fund Petrobras' $224 billion, five-year spending plan, a program which should help propel Brazil into the top five oil-producing countries.

Now the company must persuade private investors that the offering makes as much sense for them as for the country's public sector. For my money, that effort faces two key impediments:

• The government already owns a third of the company's shares and the majority of its voting rights. The offering includes a provision whereby government institutions can buy additional shares if private demand is insufficient, so its stake is likely to expand.

• With Brazil's big discoveries lying in deepwater and underneath technically challenging salt layering, full-scale production will require years of development.

It'll be informative to see how the likes of Anadarko (NYSE: APC), Repsol (NYSE: REP), and ExxonMobil (NYSE: XOM) -- all of which have been active in Brazil -- will react to increasing government involvement in Petrobras' affairs. Under all these circumstances, my advice to private investors is to limit themselves to watching how Brazil's still emerging energy world shakes out.