Petrobras CEO Is Shutting Up Critics But Big Challenges Remain

(Bloomberg) -- For Petrobras investors battered by years of mismanagement, a new chief executive officer went from villain to hero in a matter of weeks. The critical question now: Can he keep his reformist streak going -- and with it a strong rally in Petrobras shares?

President Dilma Rousseff’s choice on Feb. 6 of Aldemir Bendine to guide Brazil’s national oil company through a corruption scandal and a mountain of debt was met with bitter disappointment in the market. The stock plunged as much as 9.5 percent that day, with the career state banker seen as a government stooge sent to run a company that badly needed independence.

Bendine, aided by Ivan Monteiro, his chief financial officer who has emerged as his right-hand man, is squelching those concerns by moving decisively on several fronts.

He restored access to credit markets, ending an impasse over graft writedowns by getting independent auditors to approve long-delayed financial results; he secured a $10 billion series of loans from China that will help the company avoid a cash crunch; and he’s floated the idea of raising more cash by selling some of Petrobras’ prime offshore oilfields.

On a Roll

The 47 percent recovery in Petrobras’s share price since Feb. 6 is driven not only by what Bendine has accomplished but also by expectations of what he will deliver later this month: a road map for downsizing the dysfunctional behemoth and its $125 billion debt load. He’s already moving rapidly with a radical restructuring of internal management aimed at streamlining operations while paring salary costs.

“So far so good, but he just started,” Deyvid Bacelar, the Petrobras board member representing workers, said in an interview at a Petrobras shareholders meeting May 25. “We need to wait.”

Bendine raised eyebrows with a move approved at that board meeting that awarded 1 billion reais ($323 million) in bonuses to Petrobras employees but skipped a dividend for investors. Petrobras hasn’t paid a dividend for a year.

Some think Petrobras needs to watch all spending until its debt is under control. “Petrobras doesn’t have money to buy lunch now,” said Auro Rozenbaum, a Sao Paulo-based analyst from BBI Bradesco.

Debt Bomb

The 51-year-old Bendine, in rolling out the five-year debt-reduction plan, faces a delicate balancing act. He must accomplish this while attending to Petrobras’s battered morale from the year-old corruption scandal and raising enough capital to develop valuable offshore oil reserves, known as the pre-salt, that are critical to its ability to generate cash. All at a time of depressed global oil prices that have fallen more than 50 percent since their peak in 2008.

“You will see a clear trend of prioritizing investment in exploration and production and a clear downward trend over the previous plan,” CFO Monteiro told analysts in an April 23 call. “The circumstances have changed.”

Petrobras has already given some hint of how drastic the cuts will be. In April, just two months after Bendine was appointed, the company said investments, budgeted at $44 billion a year in its 2014-2018 business plan, would be scaled back to $29 billion in 2015 and $25 billion in 2016.

Modest Start

Bendine entered Brazil’s largest state bank, Banco do Brasil, as an office boy in late 70’s and worked his way to the top, never straying from the state-controlled institution until the Petrobras job came calling. He was named the bank’s CEO in 2009 under Luiz Inacio Lula da Silva’s presidency. Charged with the task of reducing interest rates and increasing loans, he managed to serve the government’s interests at the same time he almost tripled the bank’s assets value.

Subordinates praise him as an executive with political abilities -- a confident leader who delegates power and listens in meetings. Bank and Petrobras insiders also say Bendine has been aided in his efforts by Monteiro, who has worked with him since 2009 and followed him to Petrobras at Bendine’s request.

The two presided over an April 2013 initial public offering that raised 11.4 billion reais by spinning off Banco do Brasil’s insurance division into a new company. Petrobras, they have said, may lend itself to a similar strategy.

“Our job here is to find the hidden values,” Monteiro said in the April 23 interview.

Coming Jolt

If outsiders are poised for a jolt in spending cuts, company insiders are girding for a massive shakeup as well. One plan being floated by Bendine is to merge Petrobras’s current seven divisions into two super divisions. One would be focused on downstream operations, principally the refining of oil and purifying of natural gas, and the other on upstream or the exploration and development of oil and gas fields, according to three people familiar with the discussions.

Heads of the seven current divisions have already been asked to identify non-core positions, a prelude, many fear, to steep salary cuts, these people say. The company’s 1,000-strong communications department is expected to shrink.

And already, according to company insiders, Petrobras has eliminated its international division, which had been shrinking anyway as the company began to focus on Brazil’s own pre-salt petroleum discoveries.

Political Backing

Bendine’s most important asset in pulling this off is his ties to the president.

“Bendine has Dilma’s trust,” said Armando Guedes Coelho, a former Petrobras CEO who served the company in the 1980s. “His mandate is very focused on solving the financial issues.”

Coelho’s view is that Rousseff did the shrewd thing in appointing a banker to right Petrobras’ ship since the company’s considerable oil and gas reserves will pull it through once the company’s finances are put in order.

Coelho’s view was echoed by Danilo Onorino, a portfolio manager at Dogma Capital, which holds Petrobras bonds.

“When you have the most indebted oil company in the world, you need a banker to run it, not a geologist,” he said by telephone from Lugano, Switzerland. “It’s the best that has happened to Petrobras recently.”

--With assistance from Juan Pablo Spinetto and Peter Millard in Rio de Janeiro.

To contact the reporter on this story: Sabrina Valle in Rio de Janeiro at svalle@bloomberg.net. To contact the editors responsible for this story: James Attwood at jattwood3@bloomberg.net Ken Wells