So much for the honeymoon in Rio. Maria das Graças Foster’s confirmation as the new chief executive of Brazil’s Petrobras on Thursday was followed almost immediately by a dismal set of fourth-quarter results. Foster, a company veteran, has her work cut out to get the state-controlled energy behemoth back on track. Petrobras’ biggest problems are more political than operational, and her engineering skills alone won’t solve them.
Rising operating costs, a big refining loss and a 675 million reais ($391 million) impairment charge on unspecified assets battered fourth-quarter profit down 52 percent from a year earlier. Despite better production volumes and higher oil prices, net income was scarcely more than half what analysts expected.
Part of the problem is Petrobras’ need for speed. Private investors and the government are united in wanting the firm to unearth Brazil’s deep-sea oil as quickly as possible. But that makes it hard to keep costs under control. Only this week Petrobras broke oil industry records by agreeing to pay $76.3 billion to lease 26 offshore rigs for 15 years. Investments of this magnitude are enough to put upward pressure on prices globally.
Higher salaries in Brazil’s hot economy are also biting, as is slowing production from the company’s older Campos Basin fields, which matter to Petrobras at least until the more exciting pre-salt deepwater build-out is completed. Aside from focusing on drilling efficiency, there is little Foster can do to tackle such problems.
Downstream challenges look stubborn in a different way. Big losses in the refining business were due largely to government caps on how much Petrobras can charge for gasoline and diesel. This won’t yield to Foster’s professional expertise, either.
The best hope for investors may be that the new CEO can use her friendship with Brazilian President Dilma Rousseff to the firm’s advantage. The pair worked closely between 2003 and 2006, when the president was minister for mines and energy. But the reality is surely that Foster, who owes her new job to the Brazilian president, is more likely to do Rousseff’s bidding than the other way around.