What’s next for Petrobras after latest turmoil?

Hello from London, where senior executives of Saudi Aramco, the world’s largest oil company, are courting investors as they sell $12bn worth of shares.

Back in 2019, when Saudi Aramco had its initial public offering, the company cancelled its international roadshow and focused on the domestic market after it became clear that it would not hit a $2tn valuation target set by Crown Prince Mohammed bin Salman.

Five years later, with Aramco’s valuation still under $2tn, the government will sell another 0.64 per cent of the company. But this time Amin Nasser, Aramco’s chief executive, described it as an opportunity “to broaden the shareholder base among both Saudi and international investors”.

One particular thing to note: two Chinese banks have joined the long list of Wall Street institutions marketing the shares, suggesting there may be interest from Chinese buyers.

Now let me hand you over to Michael Pooler, the Financial Times’ Brazil correspondent, to tell you about what is going on at another vast state-owned oil company: Petrobras.

Thanks for reading. — Malcolm

What’s next for Petrobras after CEO’s ouster?

Brazil’s President Luiz Inácio Lula da Silva has made no secret of his desire for the country’s state-controlled oil major Petrobras to be an instrument of economic development, rather than simply obey the logic of shareholder capitalism. 

What exactly this means for Latin America’s largest crude producer is in focus once again, after its chief executive was ousted last month following clashes with the administration in Brasília. 

The departure of Jean Paul Prates has, for some observers at least, stirred memories of damaging political interference that threatened to sink the $99bn-valued company in the not-so-distant past. 

Attention is now on new CEO Magda Chambriard, a trained engineer who spent two decades at Petrobras before serving as the head of the national oil industry regulator. She also worked in Lula’s transition team after his election in late 2022. 

The sixth Petrobras boss in about three years, Chambriard must reconcile the competing interests of the Brazilian state and outside shareholders in the region’s most valuable publicly listed entity. (Brasília holds 37 per cent of Petrobras equity, but with more than half of voting rights wields control and chooses the chief executive). 

The fate of her predecessor, a former senator in Lula’s party who was handpicked by the leftwinger and assumed the helm in January 2023, shows just how invidious a task it is. 

Among many equity analysts Prates was considered to have balanced political demands for lower fuel prices and job-creating investments against market calls for decent financial returns and capital discipline. However, the 55-year-old was accused by some in government of being too aligned with private investors and not fully implementing the president’s vision. Lula has argued Petrobras should reduce dividends to invest more in areas such as refining, fertilisers, petrochemicals and renewables, in order to spur economic growth. 

The writing was on the wall following a flashpoint earlier this year over a proposal to distribute an extraordinary dividend, which was blocked by government-appointed board members — a decision Prates said came from Lula himself. It sent Petrobras shares down 10 per cent in a single day.

Investors also reacted badly to the CEO’s removal, with the stock yet to recover. 

Lula’s opponents warn the interventions presage the kind of meddling and mismanagement from the last period of rule by his Workers’ party, between 2003 and 2016. Back then, Petrobras was the victim of a political bribery scheme that siphoned billions of reals from its coffers. Under Lula’s chosen successor, Dilma Rousseff, the company subsidised diesel at a cost of about $40bn and teetered under huge debts.  

Subsequently, Petrobras focused on its core activity of offshore production, divested other assets and fortified its balance sheet. Today it is the world’s seventh-largest oil producer, according to consultancy Rystad Energy, just behind ExxonMobil.  

Industry figures reckon Chambriard’s views fall closer to those of Lula’s, and she gave an initial outline at a debut press conference last week. The 66-year-old said the president had asked her to manage the company “with respect for Brazilian society”, but she insisted it would follow “business logic”.

“If there’s profit, there are dividends,” Chambriard added. “I guarantee that the company will make a lot of profit.” 

With Petrobras’s oil production set to peak by the end of the decade, Chambriard stressed the need for “accelerated” exploration to increase reserves, including in a patch off Brazil’s north coast that has sparked opposition from environmentalists. She also did not rule out the possible repurchase of a refinery sold in 2021 to the Abu Dhabi fund Mubadala Capital. 

BTG Pactual analysts said Chambriard hinted at a strategy similar to that of recent years, “where economic coherence will prevail”. 

Marcelo de Assis, an oil and gas industry consultant, points out that direct political influence over day-to-day matters at Petrobras is more difficult today following reforms enacted in the wake of the corruption scandal.

“It’s not like 15 or 20 years ago, you can’t make sharp changes in direction or investments. There’s more scrutiny. Changing the corporate governance rules would take time and wouldn’t be easy. Outside investors would be quite vocal. I don’t think there will be a huge turn in the company in the short term.” 

More will become clear when the company provides an annual update to its strategic plan, expected by December. Last year, Prates unveiled a 31 per cent increase in the five-year capital expenditure budget to $102bn. With Lula’s term to run until January 2027, there is plenty of time for surprises. (Michael Pooler)

Power Points

Energy Source is written and edited by Jamie Smyth, Myles McCormick, Amanda Chu, Tom Wilson and Malcolm Moore, with support from the FT’s global team of reporters. Reach us at energy.source@ft.com and follow us on X at @FTEnergy. Catch up on past editions of the newsletter here.