Petrobras board withdrawals signal discontent

Four independent board members of Brazil's state-controlled Petrobras are stepping down in a sign of repudiation for renewed political meddling from Brasilia.

Their departure from the 11-member board is the first tangible evidence that President Jair Bolsonaro's controversial nomination of a former army general as chief executive, to replace technocrat Roberto Castello Branco, is starting to take a broader toll on Petrobras' professional management.

Whether their exit augurs changes at the executive board level, which includes chief financial officer Andrea Almeida and chief exploration and production officer Carlos Alberto Pereira de Oliveira, is unclear. Such changes could dilute Petrobras' strategic focus on pre-salt development and throw a wrench into its asset sales plans.

The four departing board members had been re-nominated by the federal government through the mines and energy ministry on 19 February, the same day Bolsonaro stunned the market with the nomination of former defense minister Joaquim Silva e Luna, whose mandate is to rein in the company's market-based fuel pricing.

In declining to accept another two-year board term, Omar Carneiro da Cunha, the former head of Shell Brasil, said the managerial change is "not consistent with best management practices", according to a letter addressed to board chairman and navy admiral Eduardo Bacellar Leal Ferreira and published by Petrobras.

Board members Joao Cox Neto and Nivio Ziviani said they would not accept the nomination for personal reasons, and Paulo Cesar de Souza e Silva praised the "excellent" work developed by executives, while declining a new term. Further changes are likely to emerge from a yet-to-be-scheduled extraordinary shareholders meeting to vote on the new chief executive. The meeting is likely to occur before 20 March when Castello Branco's two-year contractual term expires.

Bolsonaro's abrupt nomination has prompted a probe by Brazilian securities regulator CVM into a possible breach of market disclosure rules. But Castello Branco has effectively thrown in the towel, promising last week that he would work to ensure a smooth transition.

Petrobras has said the company's personnel committee is vetting Silva e Luna's credentials, including his role as head of hydroelectric firm Itaipu Binacional. Yet the firm is unlikely to cross swords with Brasilia over the nominee. Investor worries are reflected in Petroras' share price, which has still not fully recovered from a 20pc plunge on 22 February, the first day of trading after Bolsonaro's bombshell.

The extent of the overhaul will determine if Petrobras stays on track with its lean corporate strategy focused on pre-salt oil development. A $25bn-35bn asset disposal program, led by more than 1mn b/d of refining capacity, is critical to curbing debt and ensuring cash flow to invest upstream.

Silva e Luna has said he is counting on the input of executives in making fuel pricing decisions, which he says should be predictable but not result in losses for the firm, alluding to years of controlled pricing that led to billions of dollars in losses for Petrobras.

Greening oil production

In what could be his last high-profile international appearance as chief executive, Castello Branco told CERAWeek by IHS Markit yesterday that greater efficiency in oil production would help to limit its environmental impact.

"We have sought to reduce emissions in recent years. But we want even more. We do not want to reduce only costs, but also the environmental effects on production," he said on an energy transition panel.

Castello Branco highlighted how Petrobras' is dealing with high CO2 levels in offshore gas and its commitment to renewable fuels. In November, Petrobras created a climate-change division tasked with helping it to cut 25pc of total operational absolute emissions by 2030, from a 2015 baseline of 78.2Mt CO2e.

In his two years at Petrobras, Castello Branco has nonetheless resisted committing to the sweeping green initiatives launched by the company's European peers.

By Nathan Walters and Patricia Garip