Petrobras' next CEO says oil firm should focus on exploration, production

by Reuters
Monday, 19 November 2018 21:43 GMT

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By Gram Slattery, Rodrigo Viga Gaier and Marta Nogueira

RIO DE JANEIRO, Nov 19 (Reuters) - A University of Chicago-trained economist named on Monday as the next chief of Brazil's Petrobras has quickly thrown his support behind the sale of the state oil company's non-core assets and called for it to focus on exploration and production.

Brazil's incoming far-right government announced Roberto Castello Branco as the next chief executive of Petroleo Brasileiro SA, amid a debate over how far to pursue asset sales at the indebted company. A source of national pride for many Brazilians, Petrobras is Latin America's largest company by market capitalization, according to Refinitiv data, and employs some 60,000 people.

Castello Branco's appointment is the latest in a string of market-friendly selections by President-elect Jair Bolsonaro, many of them influenced by his adviser and future economy minister, Paulo Guedes.

The appointments have raised hopes among investors that the former army captain, who takes office on Jan. 1, will deliver significant reforms needed to improve Brazil's creaking public finances, including a pension overhaul.

Castello Branco, who in the past has spoken in favor of privatizing Petrobras, on Monday signaled his intention to cut costs, do away with some of the company's downstream operations and focus on its core business.

"Petrobras' competence is in oil exploration and production," he told newspaper O Estado de S Paulo.

In the interview, he added that BR Distribuidora, Petrobras' fuel distribution unit, was not a natural fit for the company and does not generate returns, sending its shares up almost 6 percent as investors bet the government may sell it.

Castello Branco also said that Petrobras should not be a monopolist in oil refining, and that he would consider all current asset sales, including that of liquid petroleum gas distribution company Liquigas.

Guedes has advocated a full privatization of the company while military generals around Bolsonaro oppose such an idea.

Underlining that tension, Bolsonaro told reporters on Monday that certain units of Petrobras could be privatized, even though the state-run company is deemed strategic for the nation.

CHICAGO BOYS

Castello Branco, a one-time post-doctoral fellow at the University of Chicago, will join other school alumni in the ranks of the incoming administration, including Guedes and former Finance Minister Joaquim Levy, who has been tapped to lead Brazil's powerful state development bank, BNDES.

Chicago's economics department has long been known for orthodox economics, particularly in Latin America, and much of Brazil's business elite is enthused by the prospect of Chicago-linked appointees in top posts in public administration.

"We basically have the University of Chicago economics department taking over the Brazilian economy," said James Gulbrandsen, chief investment officer for Latin American investments at NCH Capital, welcoming Castello Branco's appointment.

"He's been public in the past about advocating for less government intervention ... all the way to privatizing parts of Petrobras."

Castello Branco, a member of Petrobras's board until 2016, has also held executive positions at Brazil's central bank and at iron ore miner Vale SA.

"We expect Petrobras' deleveraging process and divestment program to continue under Castello Branco's tenure," Vincente Falanga and Oscar Camilo, analysts at Banco Bradesco BBI, wrote in a note to clients.

CHALLENGES AHEAD

Petrobras, which is burdened by some $88 billion of gross debt, has played a leading role in developing a bonanza of deep-water oil finds in recent decades.

But its central role in the "Car Wash" investigation, considered by many to be the world's largest corruption probe, has hurt its public image and bottom line in recent years.

Preferred shares of Petrobras ultimately rose 0.8 percent, but experienced swings during the day, while Brazil's benchmark Bovespa index fell 0.7 percent.

Bolsonaro on Monday said that Petrobras' outgoing boss, Ivan Monteiro, could go to state-run Banco do Brasil, the country's largest, although no decision has been made. Petrobras said Monteiro would leave his post on Jan. 1.

(Reporting by Gram Slattery in Sao Paulo and Rodrigo Viga Gaier in Rio de Janeiro; Additional reporting by Marta Nogueira in Rio de Janeiro and Paula Arend Laier in Sao Paulo; Editing by Daniel Flynn, Steve Orlofsky and Lisa Shumaker)

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