• CEO Parente laments unprofitable investments made in the past
  • Company turns focus to profitable deep-water projects

The combined shock of low oil prices and Brazil’s biggest corruption scandal is changing state-controlled oil producer Petroleo Brasileiro SA.

The company, based in Rio de Janeiro, is abandoning a state-development model pursued during 13 years of control under the Workers’ Party where the government shifted profits to side industries to create jobs and stimulate the economy, often at the expense of shareholders. Chief Executive Officer Pedro Parente, who joined Petrobras in June after lawmakers suspended former President Dilma Rousseff for manipulating fiscal accounts, is dumping fertilizer, biofuel and petrochemical projects to focus on pumping and selling oil.

On Tuesday Parente unveiled his first business plan that calls for $74 billion in expenditures for the five years through 2021, the company’s smallest spending program in a decade and a 25 percent cut from the most recent plan. The idea is to pay down the largest debt load in the oil industry that was used to finance projects that often failed to turn a profit, including refineries in remote regions with modest fuel demand but where the Workers’ Party had a strong following.

“A large part of these investments didn’t deliver any returns to the company,’’ Parente told reporters at a press conference on Tuesday. “We don’t have any returns or revenue related to this debt.”

The meteoric growth in Petrobras’s outlays in the past decade left the company vulnerable to graft, and prosecutors now allege that former President Luiz Inacio Lula da Silva led a vast pay-to-play scandal to finance his political coalition and remain in power. Lula has denied the accusations and says he’s the victim of a political witch hunt. Petrobras was at the heart of a corruption probe dubbed Carwash that soon spread to other industries, implicating construction companies, banks, shipyards and politicians from several parties.

To read more about corruption allegations against Lula, click here

Corruption may have cost Petrobras as much as 42 billion reais ($13 billion), federal prosecutor Deltan Dallagnol said in a news conference last week. The company is defending itself in a class action lawsuit in the U.S. from minority shareholders, and is the subject of a U.S. Department of Justice investigation. Parente said Petrobras is a victim in the case and cited the legal battles on Tuesday as a challenge, without offering a cost estimate. Itau Unibanco Holding SA estimated the cost of settling the U.S. class action lawsuit at $3 billion in a July research report.

While the government still controls Petrobras’s board through a majority of voting shares, Parente is making management more independent. Rousseff drew criticism from investors for interfering in Petrobras’s business decisions, including a policy of subsidizing fuel imports during the oil boom that cost billions. Parente said he didn’t seek any approval for the five-year business plan from President Michel Temer, who formally replaced Rousseff in August.

Technical Criteria

Appointments to state-run companies now follow technical, not political criteria, Temer said in an interview Monday, adding that his pledge not to intervene in companies like Petrobras and Banco do Brasil doesn’t mean he won’t monitor them and suggest action plans.

Parente also voiced support for a bill in Congress that would remove a requirement that Petrobras operate all fields in the so-called pre-salt region with a minimum 30 percent stake. The move would give Petrobras more control over future investments and allow for more competition in the oil industry.

It’s early to predict if Parente’s first steps will lead to a wide shift in bringing Petrobras’s corporate practices to international standards, said Adriano Pires, the head of Rio-based energy consultancy CBIE.

“It’s too soon to say this past is behind us,” Pires said by telephone. “If the root doesn’t change, nothing prevents the company from having another Carwash in four, five, six years.”

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