Petrobras tries to turn page on corruption, talks oil

By Reuters

Apr 25, 2015 09:00 AM EDT

Executives at Brazil's Petrobras on Thursday sought to move on from a giant corruption scandal that has plagued the state-run oil company, outlining a back-to-basics recovery plan that left some investors hoping the worst was over.

On a call with investors the day after publishing long-delayed audited results for 2014, Chief Financial Officer Ivan Monteiro said the focus was on reducing debt, selling non-core assets and continuing to increase oil production through careful investments in high-return assets.

Petrobras voting shares rallied as much as 6 percent as investors breathed a sigh of relief that the release of audited results reduced the risk of default and further downgrades from credit rating agencies.

Third-quarter results had been delayed since November, when auditor Pricewaterhouse Coopers (PwC) refused to certify them, saying the scandal cast doubt on the true value of company assets. Prosecutors say construction companies overcharged Petrobras for contracts and executives and politicians received kickbacks.

"Considering PwC signed off on these results, the market perception is that there are no more surprises ahead," said Frederico Mesnik, a partner at investment firm Humaita in Sao Paulo. "The major issue weighing here is that the company is very leveraged."


Petrobras posted a 2014 loss of 21.6 billion reais ($7.2 billion), its biggest ever, after taking write-downs of 50.8 billion reais. Of that charge, Petrobras said 6.19 billion reais stemmed from the scandal.

"From here on in, Petrobras guarantees a return to normality," Chief Executive Officer Aldemir Bendine told reporters after results were released.

The loss puts further pressure on President Dilma Rousseff and adds fodder to the opposition's argument that her policies have weighed on the company. She was chairwoman of Petrobras between 2003 and 2010, when much of the graft was said to have occurred.

Until the scandal began to emerge last year, Rousseff held up Petrobras as a poster child for her government's achievements, citing huge offshore oil discoveries and advanced deep-water technology.

Now the company faces a very different reality of preserving cash, curbing investments and deciding which assets to develop. It will publish a detailed investment plan in May.

"The company's level of leverage is high," Monteiro said.

"We will look to reduce this leverage, with greater operational efficiency, a reduction in capex, further sales and by prioritizing projects with high returns," he added in a call that made little mention of the corruption scandal.

To save cash, the company said it would not pay dividends for last year, causing preferred shares to fall as much as 9 percent in morning trading.

Executives also said the company would look to team up on exploration projects. Petrobras stressed it would not sell producing assets from the sub-salt area, where it made massive deep-water discoveries at the end of the last decade.

A stripped-down Petrobras could be tough for Brazil's slumping economy. The company's annual investment has frequently doubled the government discretionary infrastructure budget in recent years and has played a key role in supporting Latin America's largest economy.

Challenges still remain for the company too, as it battles its massive debt load and a huge fall in oil prices.

"Write-downs look sizeable enough to give credibility," Credit Suisse analysts said in a research note, but they warned that the outlook from executives suggested the company may continue to struggle.

Monteiro said the company might have more debt than its rivals, but none of them had the "same investment opportunities Petrobras has."

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