Weekly Report - 27 February 2020 (WR-20-08)

BRAZIL: Is Petrobras out of the woods?

Brazil’s Petrobras posted a record profit in 2019, according to the state-owned oil company’s CEO Roberto Castello Branco. Marking a second consecutive year of net profits, this appears to suggest that Petrobras has begun to overcome the difficulties which emerged over the course of the last few years from declining global oil prices, Brazil’s 2015-2016 recession, and the ‘Lava Jato’ investigation, which uncovered deep-rooted corruption within the company.

Petrobras’ net profit jumped 55.7% in 2019, to a total R$40.1bn (US$9.14bn), while its adjusted Ebitda (earnings before interest, taxes, depreciation and amortisation) grew 12.5% to R$129.2bn.

The company attributes these results to improved oil margins, a reduction in its financial expenses, and an increase in capital gains through the sale of exploration and production assets. Indeed, in spite of an increase in exports of oil and derivatives, and in natural gas sales, net revenues fell by 2.6% in 2019, due in part to a decrease in the Brent’s price in reais.  

Commenting on these results, Castello Branco said that Petrobras’ divestment programme brought in US$16.3bn in 2019. The company is planning to continue its divestment plans, hoping to close the sale of eight of its 13 refineries in 2020. Castello Branco did note, however, that Petrobras remains one of the most indebted oil companies in the world (net debt increased to R$317.87bn by year’s end 2019, from R$268.82bn at close of 2018).

The start of 2020 has brought other challenges for the company also, as Petrobras workers across the country staged strikes during the first 20 days of February. The strike was sparked on 1 February by the planned closure of a nitrogen fertiliser plant (Fafen) owned by a Petrobras subsidiary in the state of Paraná, which would leave around 400 direct and 600 indirect workers out of a job, reportedly disrespecting a collective labour agreement with trade unions. The plant’s owner, Araucária Nitrogenados (Ansa), denies this.

The industrial action rapidly became a wider movement in protest at changes to workers’ schedules, Petrobras’ divestment plans (part of the federal government’s privatisation drive), and demanding lower fuel prices. Strikes continued, reportedly mobilising 21,000 employees, in defiance of rulings issued by a supreme labour court (TST) judge, Ives Gandra Martins, who on 4 February declared that at least 90% of Petrobras workers should maintain their normal duties (a ruling which was upheld by the supreme court [STF] on 12 February); and who declared the strike illegal on 17 February, authorising Petrobras to sanction any employee who did not return to work.

Despite reassurances from both Petrobras and the national oil regulator, the Agência Nacional do Petróleo, Gás Natural e Biocombustíveis (ANP), that oil production and distribution were not affected, there were concerns that there might be disruption to the distribution chain as the strike entered its third week. Petrobras had begun contracting emergency personnel on 7 February to ensure its operational capacity. 

The strike was suspended on 19 February for negotiations between oil workers’ unions, including the Federação Unica dos Petroleiros (FUP) umbrella organisation, and Petrobras, which resulted in a preliminary agreement being struck the following day. Amongst other things, Petrobras agreed to reduce the sanctions it was going to apply to workers who took part in the strikes.

Dismissed Fafen workers have been reinstated pending further negotiations. However, the respite could be short-lived and the risk of renewed strikes remains, with the FUP insisting that the strike has merely been suspended temporarily, not cancelled.

Petrobras ratings

Petrobras reported its 2019 results on 19 February, and two days later, the oil company reported that the international ratings agency Fitch Ratings had upgraded the company’s stand-alone credit profile (SCP) by two notches from BB+ to BBB, the second level in the investment grade scale. Petrobras reported Fitch as citing, amongst other factors, improving capital structure, robust liquidity, and expectations of further improvements. Petrobras’ overall rating is maintained at BB- with a stable outlook.