Is Petrobras’ CEO at risk of being fired?

Despite spats with the federal government and market sentiment, it is highly unlikely that the CEO of Brazil’s national oil company Petrobras, Jean Paul Prates, will be fired – at least in the short term. 

In recent months, Prates, who was appointed by President Luiz Inácio Lula da Silva when he took office in January, defended the state-run firm’s natural gas reinjection strategy after being questioned by the mines and energy minister Alexandre Silveira.  

The minister is also pressuring Petrobras to sell onshore fields that it does not plan to prioritize in its future investments. The company recently said it will maintain the Bahia Terra hub in its portfolio, which had been subject to negotiations with Eneva and PetroRecôncavo.  

Prates’ administration has also been under fire from fuel importers, who filed a measure with antitrust authority Cade accusing the government of intervening in Petrobras’ fuel pricing policy. 

In May, the company abandoned the mandatory subordination to the so-called import parity price (PPI), taking the competitive advantage of owning local refining capacity into account. 

In this case, Siveira came out to defend Petrobras, arguing that importers, represented by Abicom, should improve efficiency "rather than seeking to price gouge Petrobras based on an administrative decision by Cade."

On July 30, Prates said via social media that Petrobras' management has been the target of a destabilization campaign accusing it of not being emphatic in defending Foz do Amazonas exploration.

“As in other matters, they try to create a crisis where there is none. The project has been emphatically and diligently defended in the appropriate forums and instances. And in the eyes of public opinion, we have also positioned ourselves very clearly since April,” Prates said. 

Asking to remain anonymous, a source close to the CEO told BNamericas that there is no risk of Prates being fired in the short term. 

According to the source, in the long run, Prates' tenure will depend on his ability to depersonalize management by stepping out of the spotlight.

“Jean is very good, has great knowledge and has leadership skills. But he's adopted a very personalized communication policy, everything is him and comes from him. I think that's his biggest weakness at the moment,” the source said. 

On Wednesday, as if to demonstrate that he has the government's trust, Prates published a picture (in photo) of him shaking hands with Lula after a meeting with the president and Silveira. 

"The meeting was about the investment plans, projects and works already approved, with which the Brazilian state-owned energy company will contribute to economic stability, attracting more investments, generating jobs and fighting inequalities in Brazil," Prates said. 

Flavio Conde, an analyst at Levante Investimentos, believes that rumors about Prates' possible resignation are more intrigue from Brasília than actual dissatisfaction.

"Especially because he's maintaining fuel prices, and that is good for the government," Conde told BNamericas.

The non-submission to the import parity price is potentially harmful for Petrobras’ finances and market value, he said, since Brazil relies on fuel imports, especially diesel. 

"And who will import to sell cheaper? Only Petrobras, so this is negative for the company's shares," he argued.

Sidney Lima, an analyst at Ouro Preto Investimentos, agrees with Conde. 

“In principle, I see no imminent risk of a possible dismissal of Prates, given that he has met most of the government's wishes, including holding back price increases in relation to international pricing,” he told BNamericas. 

According to Abicom, the average lag between the diesel and gasoline sold at Petrobras’ refineries and the PPI is currently at 24% and 22%, respectively.

“I’ve observed very closely how much the price of fuel in Brazil has been distanced from what is charged in the international market, a clear form of government intervention to control inflation,” Lima said. 

In Prates’ favor, there is the fact that Fitch recently raised Petrobras’ credit rating for the first time in 15 years, while Moody’s said the company’s recently announced new dividend policy does not affect its credit quality. 

“The reduction in dividend payments to 45% of operating cash flow minus investment from the previous 60% will allow for higher cash retention for Petrobras, protecting its balance sheet in the event of higher investments or acquisitions,” Moody’s said in a statement.