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Petrobras, an oil group, was in turmoil after the CEO’s dismissal

When Roberto Castello Branco took command of Brazil’s state-owned oil group Petrobras about two years ago, he knew exactly what message he had to send. Government interference finished.

But if preventing government intervention is the only measure of success, Castello Branco’s mission as CEO of Brazil’s largest company has failed.

At the end of last week, an executive educated at the University of Chicago Expulsion Brazil’s President Jair Bolsonaro will probably replace a 71-year-old reserve general with no oil and gas experience in the coming weeks.

The shock caused Petrobras shares to fall 20% or more On Monday, investors wiped out billions of dollars from market capitalization as investors worked on the prospect of the inexperienced new chief and the Brazilian government again using the oil group for political and economic gains.

“We didn’t expect this intervention at all,” said Daniel Rummery, a partner at Brunel Partners, who advises foreign investors in Brazil. “Our point is Petrobras And more about the direction the government is heading. Having a military general in charge is a clear sign to the market. “

Castello Branco was shown the door by Bolsonaro after a controversy over gasoline and diesel price increases. This admitted that President Populist has hurt some of his most vocal members: thousands of truck drivers in Brazil.

Investors are now confident in how his proposed replacement, Joaquin Silvaerna, will deal with this issue, and the group’s recently restored confidence among investors to appease the Brazilian president. I’m waiting to see if I’ll sacrifice.

Retired general Silva Erna, who currently operates the hydroelectric generator Itaipu Vinacional, has already suggested that price restrictions can be reinstated by suspending his predecessor’s policy of bringing fuel prices to international standards. ing. He said he believes state-owned enterprises should “consider social issues.”

“I have this announcement [of the general’s appointment] Given the risk to Petrobras’ management independence, it is a negative signal from a governance perspective as it also means the risk of having a fuel price policy in line with international pricing standards. ” Petrobras holds shares from neutral to sell.

When Castello Branco got a job two years ago, he was aware of its importance to investors and stuck to the idea of ​​management independence.

Petrobras was founded in 1953 as a state-owned monopoly before selling its shares to investors. It is currently a publicly traded company in both Sao Paulo and New York. The Brazilian government still holds 36.8 percent of Petrobras and 50.5 percent of voting rights.

For years under the former administration of Dilma Rousseff, the company was forced to keep prices low to curb inflation. Castello Branco estimates that Petrobras will cost about $ 40 billion in this effort, which has contributed significantly to the debt pile that could siege the company at some point.

During the Rusef administration, the company was also the vast center of Brazil. Car wash corruption scandal, It plunged the company’s stock price and resulted in hundreds of millions of dollars in fines.

Petrobras He began to regain his height under Castello Branco. In 2019, the Rio de Janeiro-based company reported revenue of $ 76 billion and profit of $ 10 billion. This is a turnaround from 2015, when the company recorded a loss of nearly $ 8.5 billion with revenue of $ 97 billion.

The company also eased investor anxiety by successfully reducing its debt pile from $ 126 billion in 2015 to $ 63 billion in 2019.

Petrobras has won praise from industry analysts for its technology and its abundant reserves of high-quality “presalt” oil in the deep waters off the southeastern coast of Brazil. Last year’s total production increased from 3.5 million barrels in 2019 to 3.7 million barrels per day. Analysts believe that production may increase over the next few years.

However, these outcomes are now at risk due to the dismissal of Castello Branco.

“The business is already experiencing great trauma, which makes it uncomfortable,” said one Petrobras employee who asked not to name it. “Rebuilding reputation and employee self-esteem was a painstaking process. Attempting to interfere regains anxiety.”

According to rating agency Fitch, the front and center are concerned about cash flow that could be hit if Silva Erna came to limit diesel and petrol prices. Luis Caetano, an investment analyst at a brokerage firm planner, said investment in presalt oil fields could also recede in the long run if cash flow were cut off.

“Investments will certainly suffer if there are major changes in pricing policy,” Caetano said.

The turmoil at the top also risks undermining the company’s plans to sell billions of dollars in assets, including refineries and pipelines.

“The sales process is a long and complex process. The important thing is that this can affect the lack of interest of the buyer. How to set the price of the asset if part of the company changes. Do you? “said one employee.

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The Petrobras Board of Directors will meet on Tuesday to discuss the nomination of Silva Erna and the government’s request for a shareholder vote on this issue.

“Since Silva Erna is a soldier, it’s clear that he fits well with Bolsonaro’s interests, and his first statement wasn’t very helpful,” said Lewis Sales, an analyst at Guide Investmentos. I am.

However, a former right-wing captain of the Army may feel that exerting influence on the company may not be easy.

“The risk is that Bolsonaro will soon drop out with this common Luna he’s putting in,” said Marcelo Mezquita, a board member on behalf of minority shareholders.

“People there [as CEO] You can’t just do what they want to do. It is the board of directors of the university, which has rules, norms, standards and technical committees. “

Additional report by Carolina Phyllis

Petrobras, an oil group, was in turmoil after the CEO’s dismissal

Source link Petrobras, an oil group, was in turmoil after the CEO’s dismissal

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