Corruption scandals and a devastating economic recession dethroned Brazil’s first female president and nearly crippled its partly state-owned oil company Petrobras.
As Brazil’s economy shrank more than 3 percent, Petrobras’ debts ballooned to $130 billion, five times its pre-tax earnings, and its shares dropped 70 percent, hammered by the revelations of collusion and kickbacks between the oil company, contractors and government officials.
Pedro Parente, 63, took the helm of Petrobras last year, returning to a job he had left a decade before, facing a historic crisis – charges of corruption, massive debts, labor disputes, historically high unemployment, volatile exchange rates and an uncertain political situation.
At the Offshore Technology Conference on Tuesday, Parente recalled how, before he rejoined Petrobras, an analyst showed him interest rates on the company’s debts would spike all at once at the end of the decade.
Its interest payments would climb from $1.7 billion in 2009 to $7.3 billion in coming years. The difference between those two figures is about the same as the cost of developing a new deep-water, pre-salt oil project off the east coast of Brazil, including – but not limited to – a multibillion-dollar floating production and storage offloading unit, Parentes said.
Parentes took the job anyway, and told a crowd of energy professionals at NRG Center in Houston that nearly a year later, Petrobras is on the right track, and is now seen as one of the forces working to solve the problems left behind by Brazil’s economic and political mess.
“In reality, Petrobras was a victim of this huge scandal that we’ve seen in Brazil,” Parente said. “We’re working very hard to leave this in the past.”
Parente’s talk at the energy conference was, in part, an admission of Brazil’s rampant scandals and the dire straits of Petrobras’ finances. But he also laid out the company’s ongoing plan for escaping its worst crisis in decades. Getting the company out of its financial mess, he said, would require a difficult balancing act: cutting capital expenditures while also raising oil production and paying off debts.
One way it has done that: Over the years, it has slowly whittled away the number of days it takes to develop a major offshore project from 300 days to an average of 90 days, and the speediest projects can be done in 50 days, Parentes said.
Over the past two years, Petrobras has sold off some $13.6 billion in assets, and it aims to hawk another $21 billion in assets this year and next. It cut 20 percent of its workforce and reduced capital expenditures by about a third last year.
Yet it hit an annual oil and gas production record last year of 2.1 million barrels of oil equivalent a day.
Since devising a plan for the company, Parentes said Petrobras has cut its ratio of debt to pre-tax earnings from 5.1 in 2015 to 3.5 this year, and it’s aiming to reduce that to 2.5 by next year.
This year, credit ratings agency Standard & Poor’s and Moody’s Investors Service raised the company’s credit rating a combined three times, and three of four analysts covering Petrobras have a buy rating on it.
“We do recognize there’s a lot of work ahead, both for the company and the country,” he said. “Allow me to tell you Brazil and Petrobras are back on the right track.”