The new boss of Petrobras said not to replenish its oil reserves would be a “fatal mistake” as the Brazilian state-owned company tries to overcome opposition to plans to drill in the mouth of the Amazon.
Jean Paul Prates, who took the helm of Latin America’s largest oil and gas producer this year, believes securing more crude reserves is critical as he prepares for the energy transition.
Petrobras is appealing a decision by Brazil’s environmental agency that recently rejected its request to drill an exploratory well 175 kilometers off the country’s northern coastline.
The deepwater block, in the Atlantic Ocean, is seen as one of the next frontiers for mining, but activists say the area is ecologically rich but fragile.
“It’s a new horizon for us,” Platts told the Financial Times in an interview at the group’s headquarters in Rio de Janeiro. “We have to worry about replenishing reserves. We can’t simply (say) it’s over without more oil. For an oil company, that’s impossible.
“You’re going to make the biggest mistake of your life. It’s going to be a fatal mistake that will spell the death of the company in 30 years.”
The former senator was picked as chief executive by leftist President Luiz Inácio Lula da Silva, who took office in January with pledges to invest in the $87 billion business. Make major reforms.
Lula has asked Petrobras to play a bigger role in the shift to low-carbon energy by investing in activities such as renewable energy and biofuels.
But he also wants the company to increase refining capacity to make Brazil self-sufficient in petroleum products. Meanwhile, Lula has unnerved some minority shareholders by criticizing Petrobras for paying high dividends against the backdrop of fat profits.
The Petróleo Brasileiro company, founded 70 years ago, is listed on the stock market, but the government is its largest shareholder.
Prates said it needed to become an “integrated energy company” to meet the challenges of the future, with fossil fuel revenues helping to fund clean energy investments.
“In the energy transition, this is important because in an oil company, the present pays for the future,” he added. “You have to reinvent (yourself) to be someone else 30 years from now. You may not sell oil and gas, or very little.”
Petrobras’ existing “pre-salt” fields – rich offshore deposits under a 2-kilometer-thick layer of sodium chloride – are expected to peak by the end of the century, so new revenue streams are desperately needed.
However, diversification would reverse the successful turnaround strategy of recent years. The company sold non-core assets such as gas stations and refineries to focus on drilling for deep-sea oil and reduce borrowing.
For some, the prospect of increased government influence evokes memories of past missteps that cost the economy dearly.
Petrobras was at the center of a massive political corruption scandal during the last days of Brazil’s leftist rule, investing heavily in offshore production and being forced to artificially lower diesel under President Dilma Rousseff A huge amount of debt was accumulated after the price. Expensive refinery projects were over budget or left unfinished.
Corporate governance has since been strengthened, and Platts, a 54-year-old politician with industry experience from the Lula Workers’ Party, insists there will be no repeat of the same mistakes.
“My message is very strong. This is not going to happen,” he said. “That type of mistake — mismanagement of the company — we don’t make.”
Petrobras’ new management has increased the budget for its decarbonization plan from 6% to as much as 15% of total capital expenditure of $78 billion over the next four years.
Describing the group’s recent profits as “exorbitant”, Prates said overall capital spending “could” increase and confirmed the company was considering cutting shareholder payouts: “It would not be scary or traumatic.”
Petrobras is studying potential projects for offshore wind and “green hydrogen” for low-carbon electricity production.
As well as re-entering areas it exited, such as fertilizers and renewable energy, the chief executive said the company should also focus “seriously” on petrochemicals, which are used in everything from plastics and soaps to paints and pharmaceuticals.
“This could be one of the bridges of transition,” he added. “Future gasoline demand is projected to be much lower. So you need to be prepared to use the oil you produce in a noble way.”
Local media said Petrobras could make a bid for Braskem, Latin America’s largest petrochemicals producer, in which it already owns 36 percent.
Braskem’s largest shareholder, construction group Novonor, is selling a controlling stake in the $5 billion company. Brazilian chemicals group Unipar Carbocloro and a consortium of US private equity group Apollo and ADNOC have made offers.
Petrobras has a right of first refusal in any tender offer. Platts said no decision had been taken, but added: “The important thing is that (Brasco) remains under Brazilian control, not necessarily for ideological reasons, but as a matter of national strategy. “
Marcelo de Assis of consultancy Wood Mackenzie questioned the logic of state groups returning to sectors they left, and of governments using them to advance a green agenda.
“Is Petrobras the best company to do this?” he added. “Why would you go from profitable (exploration and production) to a more diversified company with less profitability?”
A more immediate concern for minority shareholders is how Petrobras charges for fuel – a politically sensitive topic in Brazil. Former right-wing President Jair Bolsonaro fired three chief executives in less than a year and a half amid controversy surrounding the issue.
In keeping with Lula’s promise to “Brazilize” fuel prices, management has backed away from aligning diesel and petrol with the dollarized rates paid by importers.
Analysts criticized the new pricing policy for being unclear. “We still don’t know how it will work when oil prices spike or when currencies depreciate,” said Luiz Carvalho at UBS BB. “Can they raise fuel prices by the same amount?”
Prates insisted that international crude benchmarks would still be a factor in the calculations, without any handouts. “Petrobras does not provide any subsidies,” he said.
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