Spotlight: The change in Petrobras’ leadership

Brazil’s President Luiz Inácio Lula da Silva appointed Magda Chambriard to replace Jean Paul Prates at the helm of federal oil giant Petrobras, with analysts disagreeing on whether Chambriard, who led oil and gas regulator ANP, has the required experience to lead the company.

Lula’s decision followed a public clash between Prates and sectors of the federal government over the distribution of dividends, besides issues such as natural gas reinjection and divestments. 

Prates also came under pressure from oil workers’ unions such as FUP – a key Lula ally. The unions demand more downstream investments, the termination of the divestment process, stepping up workers’ rights and firing managers linked to former president Jair Bolsonaro, a source close to the subject told BNamericas. 

On Wednesday, FUP said more progress in support of the shipbuilding industry was needed, with the resumption of orders from Petrobras in Brazil, as well as government action, such as an increase in the local content index, a drop in financing rates for the sector with the involvement of public banks and resources from the merchant marine fund (FMM). 

FUP also urged an acceleration of the expansion of the Abreu e Lima (Rnest) refinery and Gaslub, the reopening of fertilizer plants, such as Araucária Nitrogenados (Ansa), and the completion of the UFN III plant.  

"The deadlines for completing these projects are very far away, 2028 and 2029. What justifies a refinery that is lacking only 30% to be finished, like Rnest, only opening in 2028?" FUP general coordinator Deyvid Bacelar said in a statement.

Prates told BNamericas recently that the resumption of the Rnest, Gaslub and UFN III units was necessary. They were interrupted amid the Lava Jato anti-graft probe. 

FUP highlighted that Petrobras must continue to support Lula’s government program, “being an agent of the country's economic and social development, inducing employment and income.”

Bacelar added that “the ideas of Magda Chambriard, a specialist in the area, are in line with those of FUP in relation to strengthening the national naval industry, local content and expanding the refining park.”

As ANP head, Chambriard strictly applied fines for non-compliance of local content requirements, which led to friction with oil and gas operators and investors. She is also a defender of oil and gas exploration in Brazil’s geologically promising but environmentally sensitive equatorial margin.

In a letter Prates sent to people close to him on Tuesday, and which was obtained by BNamericas, he wrote: 

"Dear friends,

The president has just asked for my job back. He must appoint Magda. We'll talk more tomorrow.

My mission was cut short prematurely in the jubilant presence of [mines and energy minister] Alexandre Silveira and [chief of staff] Rui Costa. I don't think there's any chance of reconsideration. They'll announce it shortly.

I can only thank you and hope that you manage to stay or reposition yourselves. Count on me for whatever I can do.

JPP."

On Wednesday afternoon, Petrobras reported that its board had approved the early termination of Prates' mandate. 

The board also removed Sergio Caetano Leite from his position as finance and investor relations director and appointed the current executive finance manager, Carlos Alberto Rechelo Neto, to the position on an interim basis.

ANALYST VIEWS

Afonso Gomes, president of regional economics council Corecon-SP, raised concerns regarding the change of command at Petrobras. He said Prates had been doing a good job of containing political interests and minority shareholders, as in the case of the distribution of extraordinary dividends. 

"Prates wanted to retain 50% because he knew that the funds would be necessary for the company's cash flow. This was also minister Haddad's technical line. There was no technical support for withholding or distributing everything," Gomes told BNamericas.  

He believes that Chambriard does not have the management experience required for a company the size of Petrobras. "The most senior position she held was director general of ANP, which is a bureaucratic body." 

On the other hand, the change could cool the tension between minority shareholders and company management, said Gomes. 

Luan Alves, an analyst at VG Research, emphasized that Chambriard has a long track record in the oil and gas industry. 

"Our view of the company [leader’s] curriculum and technical capacity is positive, even if we disagree on some ideological points," he said in a press release. 

Alves predicts that Petrobras will seek to carry out new M&As and adopt strategies to reduce the volatility of fuel prices. "And we still believe it will pay double-digit dividends in 2024 and 2025," he added. 

In the first quarter, Petrobras recorded a profit of 23.7bn reais (US$4.6bn) and distributed 13.5bn reais in dividends. 

Eduardo Silva, president of economics think tank Instituto Empresa, said in a release that he was concerned about the reasons for the change. 

"The rumors of political interference, revealed above all in the dividend payment episode, have already caused the company a loss in confidence in the market, with a significant drop in the price of its assets," he said.

BB Investimentos said the leadership change does not make it clear which principles that currently underpin the 2024-28 business plan will be maintained and which will be modified, increasing uncertainty for minority shareholders. 

The bank changed its recommendation to buy Petrobras shares to neutral, maintaining the target share price at 47 reais for 2024.

"The change in recommendation may be reversed in the future, if we understand that the assumptions that guarantee a good return to minority shareholders will be maintained, notably in the case of capital allocation," it said.