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Petrobras needs to deliver as presidential elections close in

Dado Galdieri/Bloomberg

The clock is ticking for Petrobras "Pedro Parente". Looks to sign $21 billion in asset sales through June 2018. Revision of offshore contract could deliver up to $30 billion

Sabrina Valle and Peter Millard

Petroleumworld 11 16 17

The clock is ticking for Petrobras "Pedro Parente".

Chief executive officer since May 2016, Parente has set an aggressive agenda to solidify the state-controlled company's finances after the twin challenges of the oil rout and a corruption scandal dealt it a near-death experience. Now, he's rushing to finish his work before an unpredictable presidential campaign makes it harder to sell assets and complete a key compensation deal with Brazil's government. 

Parente foresees signing $21 billion in asset sales in the next eight months before domestic politics become a distraction ahead of the election next October. Petrobras is also progressing on a deep-water contract review that could deliver the company up to $30 billion in compensation under one scenario, he said.

“We are full speed ahead,” Parente said in an hour-long interview at Bloomberg's headquarters in New York. “Next year we can expect more volatility, and we are prepared for that.”

The Rio de Janeiro-based producer is in a comfortable position going into a volatile 2018 after it pushed out debt payments, built up its cash position and brought operating costs under control. Parente, who gained experience in crisis management when he oversaw power rationing as energy minister during a 2002 drought, is gearing up for the challenge.

“It's even harder for a state-owned company in an election year,” he said.

The two front runners to replace President Michel Temer have both failed to generate any enthusiasm among investors and have high rejection ratings in polls. Candidates have come forward from all corners of the political spectrum to vie in the election, emboldened by two years of recession and scandals that led to former President Dilma Rousseff's impeachment and almost toppled her successor.

Petrobras has benefited under Temer, who has been more successful at unwinding nationalistic oil regulations than implementing fiscal and social security reforms since taking office last year. He won't be a candidate in 2018 with his approval rating in the single digits, putting pressure on Petrobras to accomplish what it can under the current administration.

Divestment Drive

Top on Parente's to-do list is more deals. The company surprised investors in 2016 with blockbuster asset sales that totaled nearly $14 billion. Then many of the transactions got caught up in legal challenges and the company had to restructure its procedures after new regulations came into effect.

Parente, a former chairman of Brazil's main stock exchange, is ready to make up for lost time before before the country shifts into campaign mode. He sees strong demand for an initial public offering of BR Distribuidora, the largest gasoline station network in Brazil with about 8,000 units and more than 1,000 convenience stores.

‘Love to Do It'

“We would love to do it this year,” Parente said. “We have a portfolio of $40 billion” in assets that can be sold.

In an interview Wednesday at a New York investor conference, Parente said he also plans to meet in Brazil soon with representatives of China National Petroleum Corp. to discuss a variety of “strategic partnerships." That could include Petrobras' refineries, the CEO added.

Petrobras' fuel unit could surpass the July IPO of French retailer Carrefour SA's Brazil division, Parente said. Other big-ticket items include its African oil operations and its stake in petrochemical producer Braskem SA.

Parente is working to finalize negotiations about the value of oil reserves in the so-called pre-salt region. It's a $30 billion difference of opinion, ranging from Petrobras paying a very little, in his words, and one scenario suggesting $30 billion as the most they'd get.

The government also stands to gain, because if both sides reach an agreement it will be able to hold a bid round early next year in a deep-water zone where massive oil deposits have already been identified, Parente said.

The government has said an agreement is needed by the end of this year to have time to organize a bid round no later than June. So the clock is ticking.

Seven Scenarios

“They need more cash and faster than us,” Parente said. “The government has seven scenarios, and five out of seven show a positive result for Petrobras.”

In 2010, Petrobras received $27.5 billion from investors in a deal designed to extract oil riches buried off Brazil's Atlantic shore. As part of the transaction, Petrobras traded company shares with the government for undeveloped oil -- originally set at $8.51 a barrel -- and agreed to revise the value after the deposits were declared commercial to factor in changes in oil prices and project delays.

Petrobras originally paid $42.5 billion in shares for the rights to produce 5 billion barrels, bringing the total value of a 2010 share sale to $70 billion. The drop in oil prices since then works in Petrobras' favor, Parente said.

“I won't sign any contract in which I need to pay anything,” he said.

Story by Sabrina Valle and Peter Millard ; With assistance by Alex Nussbaum of Bloomberg.

/ 11 15 2017

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