Petrobras Director Learned of $7 Billion Deal From Filing

Petroleo Brasileiro SA board member Mauro Cunha said he learned of an agreement to pay the Brazilian government $6.8 billion over five years for new oil rights from a filing to the country’s securities regulator.

Cunha, an independent director in a board dominated by government officials, made the comments today in an e-mailed response to questions. He didn’t elaborate on the decision to charge state-run Petrobras (PBR) for access to as much as 15 billion barrels of crude at deep-water fields, almost as much as Brazil’s current proven reserves.

The arrangement was announced by the National Energy Policy Council led by the energy minister. Making the deal public before presenting it at a board meeting, as people briefed on the matter said yesterday, highlights how some of the most important decisions impacting Petrobras have been made by the government with little board input, weakening corporate governance at the biggest deep-water producer in the world.

The press departments of Petrobras and the energy ministry didn’t respond to requests for comment.

Last year board members learned of a fuel price increase through the media, Agencia Estado reported at the time. In February, five members of the audit committee complained to securities regulator CVM that they were given only a few hours to review hundreds of pages of quarterly results.

Financial Experience

In April, a group of investors led by Aberdeen Asset Management Plc won a board seat for Jose Guimaraes Monforte, an economist who has held positions in the finance industry including the head of Merrill Lynch & Co.’s Brazilian unit from 1979 through 1987 and chief executive officer of Pragma Gestao de Patrimonio, a Sao Paulo-based asset management firm.

Europe’s largest publicly traded money manager is pushing for board members with financial experience as subsidized fuel sales and runaway investments in refineries undercut earnings. The board is led by Finance Minister Guido Mantega.

The world’s most indebted publicly traded oil company agreed to pay 15 billion reais ($6.8 billion) through 2018 to produce more oil from a region that holds the giant Buzios field. It is considering selling assets and restructuring other projects to help shoulder the cost.

The announcement spurred the biggest share price decline in six weeks and rating cuts by Banco Bradesco SA and UBS AG. The contract -- including a 2 billion-real payment this year and the rest by the end of 2018 -- increases the risk that Petrobras will look to sell new shares, Banco BTG Pactual analysts wrote in a note to clients.

Chief Executive Officer Maria das Gracas Foster ruled out a share sale twice during a press conference in Rio de Janeiro this week.

Oil and Gas Secretary Marco Antonio Almeida said June 24 that the deal gives Petrobras a “great” oil area and wasn’t designed to improve the government’s fiscal accounts.

Petrobras shares rose for the first time in five days, gaining 0.9 percent to 17.44 reais at 4:30 p.m. in Sao Paulo.

To contact the reporters on this story: Sabrina Valle in Rio de Janeiro at svalle@bloomberg.net; Peter Millard in Rio de Janeiro at pmillard1@bloomberg.net

To contact the editors responsible for this story: James Attwood at jattwood3@bloomberg.net Robin Saponar

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