Energy Voice | Eight hours that turned Petrobras chief from market darling to dud

Eight anxious hours.

That’s how long it took the chief executive officer of Petrobras to decide that he must break a promise to investors to help contain the growing chaos from a Brazilian trucker strike. For the first time in three years, Petrobras agreed to sell fuel below market prices in a move based purely on politics.

The reaction? Truckers rejected the move and shares in the state-controlled oil producer tumbled the most in a year.

Pedro Parente’s actions Wednesday came after what started as a routine labor dispute became a logistical crisis spanning Latin America’s largest economy. Flights were canceled at some airports amid fuel shortages. Buses were idled in Rio de Janeiro, where the company is based. Supermarkets were beginning to limit purchases in fear of coming shortages.

He called the first meeting with his management team late before lunch on Wednesday, according to a person familiar with the talks, who asked not to be named because they were private. At that first meeting in Rio, Parente wasn’t ready yet to pull the trigger on a fuel price cut. The government and truckers were set to meet in the afternoon; there was hope the tensions would be eased.

But that didn’t happen. Instead, the government offered no prices concessions and the blockades continued.

Afternoon Meeting

At 5 p.m., Parente met again with his executives, as the situation outside their offices fell further into chaos. The decision: Petrobras had a social responsibility to sacrifice some revenue for the common good, according to the person familiar. The management team agreed to lower the cost of diesel fuel by 10 percent for 15 days, buying time for the government and the truckers to reach an accord.

“The situation became more and more serious, in a very fast way,” Parente said Thursday on a conference call with analysts. “It was an exceptional situation, that required an exception.”

The immediate cost would be an estimated 350 million reais ($96 million) in lost revenue. The damage to the company’s credibility with investors, though, may last much longer. At least four analysts downgraded the shares or cut their price targets in response, criticizing Parente for reverting Petrobras to its former role of absorbing losses to pacify consumers and the government.

Shares Plunge

Petrobras dropped 13 percent to 20.16 reais Thursday, shaving 45 billion reais ($12.4 billion) off of its market value.

Investors are still traumatized by the estimated $40 billion Petrobras lost from fuel subsidies during the last oil boom. Parente has insisted the price cut was a one-off and would only last 15 days, to give the government time to resolve the dispute.

In Parente’s first two years on the job shares nearly tripled as won praise for eliminating government interference, selling assets and streamlining operations.

“Welcome back to 2013, when Petrobras returns to its dubious status as the only oil company that loses money when Brent goes up,” said James Gulbrandsen, a Rio de Janeiro-based money manager at NCH Capital.

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