June 1 (Bloomberg) -- As Maria das Gracas Silva Foster took over as chief executive officer at Petroleo Brasileiro SA, she couldn’t help giving a shout-out to two forces that have shaped her life.
The first went to Petrobras, the world’s biggest deep-water oil producer, on whose Rio de Janeiro stage she was standing on Feb. 13 to be sworn in as CEO, Bloomberg Markets magazine reports in its July issue. The second was to her mother, who decades ago encouraged a work ethic that propelled her young daughter from a poor neighborhood to the pinnacle of her profession.
“The badge and I have been together for more than 30 years,” Foster told several hundred employees as departing CEO Jose Sergio Gabrielli handed her a symbolic Petrobras ID card. “I thank my mother, Terezinha, for the power of her transforming love.”
Foster, a 58-year-old engineer who favors pantsuits and has two small stars tattooed on her wrist, is leading Latin America’s biggest company by market value just as Brazil’s economy cools.
During a decade-long boom, at least 30 million Brazilians have emerged from poverty, and the country now has at least 100,000 millionaires. In 2011, though, growth slowed to 2.7 percent from an annual average of 4.6 percent in the previous four years.
Brazil is counting on Petrobras to provide national energy self-sufficiency that will meet the demands of a growing economy. The company, which is 51 percent controlled by the government, produces 91 percent of Brazil’s oil and 90 percent of its natural gas.
It’s struggling to increase output and develop reserves after new offshore wells have failed to compensate for faster-than-expected declines at older fields. That imbalance is putting Petrobras behind in reaching its 2020 target of 6.4 million barrels of oil equivalent a day, up from the current 2.6 million.
Petrobras will account for about 40 percent of the 922 billion reais ($456 billion) in energy and infrastructure spending in Brazil from 2010 to 2015, even as the country splurges on airports and stadiums for the 2014 World Cup and 2016 Olympics.
“Oil and gas are an increasingly important sector of the economy and will only grow in size and import,” says Christopher Garman, an analyst who covers Latin America at Eurasia Group in New York. “The capacity of Petrobras to deliver is tremendously important.”
Investors are betting that Foster, an engineer who has spent 31 years immersed in Petrobras -- from its drilling platforms to its management suites -- is the right person for the job. Petrobras stock, hit by the slowing output growth, jumped 3.8 percent on Jan. 23 when she was named the company’s first female CEO -- the biggest increase in eight months.
Nick Robinson, a portfolio manager at Aberdeen Asset Management in Sao Paulo, says Foster is a skilled technical manager who can tackle glitches that have forced unscheduled shutdowns at drilling sites.
Delays in platform construction and increased outages to perform maintenance began surfacing during Gabrielli’s tenure. The former CEO, an economist and academic, focused more on finances than on day-to-day operations as he shepherded Petrobras’s $70 billion share offering in September 2010, the world’s biggest.
Today, public shareholders own 49 percent of the company’s voting stock. Petrobras shares have dropped 29 percent since the share offering through May 31.
Luz Padilla, who helps manage $1 billion of emerging-market debt, including Petrobras, at Doubleline Capital LP in Los Angeles, is bullish on the company.
“It’s an industry that could reshape the profile of Brazil, given the potential of their finds,’’ she says. Padilla says Petrobras bonds are attractive compared with such global peers as BP Plc because they have a lower price and higher yield, paying more interest.
Foster is pushing Petrobras to cut through bottlenecks. In May, she created a management position to oversee the purchase and installation of platforms, rigs and pipelines. The division will try to head off cost overruns and construction setbacks at local yards that have slowed progress at a company with 80,000 employees and 244 billion reais in annual revenue.
“Someone like her, who is perhaps more of an operational person, could be a huge asset,” says Robinson, whose firm held 5.8 million Petrobras shares on Feb. 29.
Manuel Fernandes, head of KPMG International’s oil and gas division in Rio, met Foster when she ran Petrobras’s natural gas business and KPMG was its auditor. He says she knows the nitty-gritty of the company and the industry.
“You wouldn’t expect someone in her position to look into too many details, but she does,” he says. “That’s how she is.”
Brazilian President Dilma Rousseff is another fan. The two, now among the world’s most powerful female leaders, began working together in 2003. Rousseff was energy minister under President Luiz Inacio Lula da Silva. Foster, who holds a degree in chemical engineering from the Fluminense Federal University in Niteroi, in Rio de Janeiro state, was Rousseff’s secretary for oil, natural gas and renewable fuels.
Foster returned to Petrobras in 2005, while Rousseff served as its chairman from 2003 through 2010. Like Rousseff, Foster is a member of the governing Workers’ Party, which has close ties to unions. The party’s jobs programs and subsidies for poor households have helped vault millions into the middle class.
“With Graca at the helm, Petrobras will be in good hands,” Rousseff said at the February event, using Foster’s nickname. “I know the work capacity, competence and seriousness with which Graca dedicates herself, not only to this company but also to everything she does in her professional life.”
For investors, Foster’s first order of business is to boost output, which rose 1.5 percent last year, to an average 2.6 million barrels per day of oil equivalent. It was the slowest pace since 2007 and well below the company’s 7.7 percent target.
The new CEO is stymied by rules enacted under Lula. Petrobras must buy as much as 70 percent of its equipment -- from giant offshore platforms to polyester rope for anchors -- from domestic suppliers.
The former president set the local-content regulations to aid Brazil’s oil services industry and reduce reliance on imports. In December, Petrobras canceled a plan to lease 21 drilling rigs after offers by local suppliers proved too expensive. One bidder, Sete Brasil Participacoes SA, is a shipbuilder that Petrobras and the Brazilian Development Bank formed to construct the platforms.
In an effort to control inflation, which reached 5.2 percent in March, the government also caps how much Petrobras can charge for gasoline. The price of fuel in early May was 4.38 reais per gallon at the refinery gate, a 21 percent discount from international markets, according to estimates by Banco Bradesco SA.
Brazilian motorists pay more at the pump than U.S. drivers do because of taxes. With domestic prices low, Petrobras loses money on every liter of imported gasoline and diesel it sells in Brazil.
Foster must guide the company through some of the world’s most challenging petroleum-engineering feats. She knows the territory, having been the first woman at Petrobras to board an oil platform in the Atlantic Ocean to install drilling equipment.
As of March, 90 percent of Petrobras’s oil production in Brazil came from offshore fields, most from wells at depths of more than 300 meters (980 feet). With these wells aging, Petrobras is betting on so-called pre-salt fields -- regions as deep as 7,000 meters and as far as 300 kilometers (186 miles) from land.
Rough seas, tricky geology and the distance workers must travel make drilling more complex than in the Campos Basin off southeastern Brazil, where Petrobras gained most of its expertise.
Petrobras will be going it alone with these deep wells. A law passed in 2010 requires the company to be the sole operator of new pre-salt developments. Foreign oil companies can only take stakes, not run the sites.
“That’s a problem,” says Scott Black, president of Delphi Management Inc., an investment management firm in Boston. He says Petrobras is a good investment that would be even more attractive if Brazil’s oil industry were a free market. “Free enterprise might do better long term,” he says.
Foster is also navigating the environmental hazards of drilling in deep waters. Chevron Corp., the second-biggest U.S. oil company, spilled 3,000 barrels in November at the Frade Field, where Petrobras is a partner. It was Brazil’s eighth-most-productive area until Chevron suspended drilling.
Prosecutors are going after Chevron with three lawsuits seeking a total of 40 billion reais in damages, and lawmakers have demanded investigations into the incident. Petrobras said in a March 30 filing with the U.S. Securities and Exchange Commission that it’s liable for 30 percent of any payments for the spill.
Petrobras foresees as much as $527 million in possible losses from other environmental claims. Among these are a July 2000 spill at the President Getulio Vargas Refinery in Araucaria, Parana state, and payouts to fishermen for a spill in Rio that same year, the company said in the filing.
Ultimately, Foster, with guidance from Rousseff’s government, will have to decide whether to run Petrobras as a state-owned, job-creating bureaucracy or a modern public company. Today, the government names seven members of the 10-person board, and shareholders lack any real power.
Petrobras workers say the company must tilt toward local industries and the interests of Brazil.
“Petrobras can’t produce oil according to what’s needed by others,” says Silvio Sinedino, who represents employees on the company’s board. “It can’t be a company that’s concerned about revenue for the sake of revenue.”
Jim Crandell, an analyst at Dahlman Rose & Co. in New York who leads coverage of oil services providers, says ignoring market realities can hurt Petrobras.
“The goal of Brazil seems to be to provide employment to its citizens,” he says. “Brazil may find that it has to pay more for equipment and services going forward. There certainly is the risk of material delays.”
Should Foster overcome Petrobras’s drilling hurdles, appease shareholders, satisfy employees and boost output as planned, Brazil may go from being almost self-sufficient in oil to becoming a big source for the U.S. and other consumers. President Barack Obama said during a 2011 visit that he wants the country to be a major U.S. supplier.
“If Petrobras doesn’t help Brazil by increasing production growth, there’s a serious chance Brazil moves back into an oil-importing situation and loses its status as a self-sufficient producer,” says analyst Gustavo Gattass at Banco BTG Pactual SA in Rio.
T.J. Conway, a research and advisory manager at New York-based Energy Intelligence Group, says Petrobras must strike a balance between local demands and exporting.
“Brazil can definitely be a contributor to global markets and an important player, and perhaps eclipse the rest of the region in terms of being a net exporter,” he says.
Foster, whom colleagues have dubbed “Caveirao” in a reference to the armored vehicles police deploy in crime-ridden neighborhoods, is used to plowing through roadblocks.
Her mother raised young Graca and her sister, Rita, in Rio’s Morro do Adeus, a poor neighborhood that eventually deteriorated into a shantytown. Her mother worked. Her father was an alcoholic, Foster told Bloomberg News last year. Graca collected cans and paper for pocket money until the family moved in with an aunt in Niteroi.
Foster graduated from Fluminense Federal University in 1978, going on to earn a master’s degree in nuclear engineering from the Federal University of Rio de Janeiro and a Master of Business Administration from the Rio-based Getulio Vargas Foundation. She joined Petrobras’s exploration and production division as an intern in 1979.
Two years later, she boarded an offshore oil platform to install equipment, going on to manage the drilling division. She became the first woman to run Petrobras’s field engineering, taking over the distribution unit and the chemical and petrochemical division, Petroquisa.
In September 2007, Gabrielli named her Petrobras’s first female director, the second-highest management level, when she took charge at the gas and energy division. Today, of about 12,200 engineers at Petrobras, about 1,400 are women.
Foster married and had a daughter. She then divorced, remarried and had a son. Her second marriage stirred controversy after Brazilian newspapers reported that husband Colin Foster owned an engineering company that had supplied Petrobras with equipment from 2007 to 2010.
Petrobras responded in 2010, saying the division Foster headed didn’t do business with Colin Foster’s company, according to Petrobras’s website.
Foster, wearing a pink suit with a satin blouse at headquarters the year before she was named CEO, said she had to be 100 percent available for her job.
“I have two children,” she said in the January 2011 interview in a 23rd-floor office with a view of Guanabara Bay. “I gave up a lot for my career, but I’m very happy for it. I’ve done what I’ve always thought was best for me and my family.”
Foster expects similar dedication from her employees. She says she wants her staff to work one day a week -- joking that the day starts on Monday and ends on Saturday.
“I once called one of my managers, and he answered while he was bathing his two children,” she recalls. “While he spoke, he dropped the cell phone in the tub, picked it up and continued talking.”
Marcio Mello, CEO of Brazilian oil explorer HRT Participacoes em Petroleo SA, worked with Foster for 18 years. He recalls their time at the research division, Cenpes, which develops technology to explore the pre-salt region.
“She’s the kind of person you give a mission to and she delivers above expectations,” Mello says, showing a framed photo of himself with Foster in 1999, when they received a research award for their work at Cenpes. “This is why Graca will do a fantastic job at Petrobras. She’s fair, a hard worker, focused; she has targets; she’s a performer. My dream is to have a person like Graca at HRT.”
Foster isn’t the only woman leading Brazil’s energy effort. There’s also Magda Chambriard, who, like Foster, rose through Petrobras. She heads Brazil’s oil regulator, ANP.
“Brazil is in a unique moment,” Mello says. “Now we have two ladies, not only with huge experience but huge knowledge.”
Chambriard’s job at the regulator ends years of the plum political appointment going to people with little oil experience.
Foster’s promotion at Petrobras may mean continued government meddling, Delphi’s Black says.
“They’ve got probably the best drilling profile of any of the national oil companies,” he says of Petrobras. “They’ve got expansive fields off the coast. The problem is, the government keeps upping the ante.”
Black points to the controls on gasoline as one way the government hurts the company. Publicly traded competitors benefited as oil prices rose 8.3 percent during the fourth quarter. Petrobras lost by operating as an arm of the government instead of competing in a free market. Fourth-quarter net income dropped to 5.05 billion reais, 52 percent less than a year earlier.
Foster may be willing to challenge Rousseff on gasoline prices. Petrobras’s budget for 2012 estimated oil at about $90 a barrel. With oil above $110, she told an April conference organized by the Brazilian Oil, Gas and Biofuel Institute that prices may have to be adjusted.
“The very fact that she’s brought this argument to the forefront and is being slightly aggressive means the government is being tested,” Aberdeen’s Robinson says. “There’d be a pretty clear signal that they are going to use Petrobras as a tool of economic policy rather than let it be run for the benefit of minority shareholders if they don’t allow the company to increase prices.”
At the same time, employees are demanding that Foster look after them. Board member Sinedino, an engineer in the seismic department, says Petrobras must improve worker safety. He expects Foster to remain an ally.
“She is one of us,” he says. “She has spent her life at the company, has worked everywhere; she knows exactly what’s going on and what needs to be done.”
Foster, in her acceptance speech, acknowledged the effort ahead.
“Taking over the company is a big challenge, bigger than the combination of all those challenges I faced till I reached this day,” she said.
Then she touched her heart in a gesture to her Petrobras colleagues. “I owe the moment to you all,” she said.
“Finally, I thank the Lord for this moment, my children for accepting me as I am, and my mother, Dona Terezinha.”
To contact the reporters on this story: Rodrigo Orihuela in Rio de Janeiro at firstname.lastname@example.org
Peter Millard in Rio de Janeiro at email@example.com
To contact the editor responsible for this story: Dale Crofts at firstname.lastname@example.org