UPDATE 3-Brazil charges Petrobras high price in $43 bln swap

* Price above Petrobras', analysts' estimates

* Valuation of oil is key step for capitalization

* Private shareholders worry about dilution
(Adds additional comments, details)

By Raymond Colitt

BRASILIA, Sept 1 (Reuters) - Brazil's government will
charge state oil company Petrobras $8.51 per barrel for crude
reserves to be used in a $43 billion oil-for-shares swap, a
price seen as high that could limit interest in a related share
offer.

The government will trade 5 billion barrels of oil for
company shares, Finance Minister Guido Mantega said on
Wednesday, in an operation linked to a stock issue for private
shareholders that could raise as much as $25 billion more in
cash.

The price is considerably higher than the $5 to $6 per
barrel markets see as fair, possibly leaving Petrobras
(PETR4.SA) raising less cash than it had hoped as it advances
plans to tap vast but hard-to-reach oil fields deep below the
ocean floor.

"It's the biggest transaction of its kind," Mantega told
reporters in the capital Brasilia. He said terms and conditions
of the operation will be announced on Sept. 3.
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Details of capitalization plan [ID:nN09151318]

Brazil oil graphic: link.reuters.com/wec82j

Shareholder Graphic: link.reuters.com/quf29k

Graphic of oil discoveries: link.reuters.com/fyh84m

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Oil for the exchange will come from six fields, including
key deep water discoveries such as Franco and Tupi that are
buried under a layer of salt in a region known as the subsalt
that President Luiz Inacio Lula da Silva has called a "gift
from God."

"That price of $8.51 per barrel is going to make the shares
drop," said Adriano Pires, an energy expert at the Rio de
Janeiro-based Brazilian Infrastructure Center.

Monica Araujo of the brokerage Ativa said the price per
barrel "seems very high, a lot higher than the expectations."
She had pegged the price near $7 per barrel.

Investors worry that the high price per barrel will leave
Petrobras overpaying for the assets and dilute shares. The
company had pushed for a price closer to $6 per barrel.

The plan has become the financial cornerstone of the
company's $224 billion five-year investment plan meant to turn
Brazil into a major oil exporter.

Petrobras hopes to complete both the swap and the share
sale within its September target to avoid overlapping with
national elections on Oct. 3.

SKEPTICAL INVESTORS

Petrobras in the coming days will likely hold a roadshow to
convince skeptical investors to join the operation. Uncertainty
about the plan has pushed its shares down 25 percent since the
start of the year.

The share offering is so large it is already helping
strengthen Brazil's real currency on the expectation of massive
capital inflows.

Government leaders have said they hope to increase the
total stake in the company's capital from around 30 percent to
as much as 40 percent, a move that has unnerved investors but
plays well to Brazilian nationalist sentiment.

"The government is increasing its stake in the company by
twisting the arms of the shareholders," said Francois Moreau,
an independent energy analyst based in Rio de Janeiro.

"The company's commercial mission is being replaced by a
political mission."

Preferred shares of Petrobras, the company's most widely
traded class of stock, closed up 3.72 percent to 27.03 reais on
the Sao Paulo stock exchange.

The plan comes amid a presidential election campaign in
which Lula's candidate, Dilma Rousseff, is heading for victory
on pledges to continue his economic legacy and plow the oil
wealth into education and development.

Shareholder participation will be crucial for Petrobras to
shore up its balance sheet, which has been stretched by a
combination of a two-month delay in the oil-for-shares plan and
heavy borrowing to finance its ambitious offshore plans.

While the oil swap will win Petrobras valuable new
reserves, the share sale will provide the only cash in the
operation. The total value of the operation -- the combined
value of the share sale and the oil swap -- is capped around
$85 billion.
(For complete coverage of the Petrobras capitalization, click
on [ID:nN01139201])
($1=1.74 reais)
(Additional reporting by Brian Ellsworth and Denise Luna,
writing by Brian Ellsworth, editing by Stuart Grudgings and
Bernard Orr)