New Petrobras CEO needs to flex political muscle
By Kevin Allison and Christopher Swann
The authors are Reuters Breakingviews columnists. The opinions expressed are their own.
So much for the honeymoon in Rio. Maria das GraĂ§as Fosterâs confirmation as the new chief executive of Brazilâs Petrobras on Thursday was followed almost immediately by a dismal set of fourth-quarter results. Foster, a company veteran, has her work cut out to get the state-controlled energy behemoth back on track. Petrobrasâ biggest problems are more political than operational, and her engineering skills alone wonât solve them.
Rising operating costs, a big refining loss and a 675 million reais ($391 million) impairment charge on unspecified assets battered fourth-quarter profit down 52 percent from a year earlier. Despite better production volumes and higher oil prices, net income was scarcely more than half what analysts expected.
Part of the problem is Petrobrasâ need for speed. Private investors and the government are united in wanting the firm to unearth Brazilâs deep-sea oil as quickly as possible. But that makes it hard to keep costs under control. Only this week Petrobras broke oil industry records by agreeing to pay $76.3 billion to lease 26 offshore rigs for 15 years. Investments of this magnitude are enough to put upward pressure on prices globally.
Higher salaries in Brazilâs hot economy are also biting, as is slowing production from the companyâs older Campos Basin fields, which matter to Petrobras at least until the more exciting pre-salt deepwater build-out is completed. Aside from focusing on drilling efficiency, there is little Foster can do to tackle such problems.
Downstream challenges look stubborn in a different way. Big losses in the refining business were due largely to government caps on how much Petrobras can charge for gasoline and diesel. This wonât yield to Fosterâs professional expertise, either.
The best hope for investors may be that the new CEO can use her friendship with Brazilian President Dilma Rousseff to the firmâs advantage. The pair worked closely between 2003 and 2006, when the president was minister for mines and energy. But the reality is surely that Foster, who owes her new job to the Brazilian president, is more likely to do Rousseffâs bidding than the other way around.