Petrobras struggles with losses as probe drags on

For a tense period on Wednesday evening, those gathered for the press conference of Brazil's corruption-plagued Petrobras began to sense a feeling of deja vu.

The state-controlled oil company had announced it was planning to release at 6pm its long-delayed audited financial results for the second half of last year. But as the minutes ticked past the appointed hour, some journalists began to fear a repeat of January, when the company kept them waiting until 4am before releasing an unaudited version of the same figures.

Then at 7.30pm, Aldemir Bendine, the new chief executive of Petrobras handpicked by President Dilma Rousseff to rescue it from its problems, finally appeared with the board in tow. "Thanks for your patience," he said.

Since November, when Petrobras revealed its books were suspected to be so tainted by a huge corruption scandal that PwC, its auditor, had refused to sign off on them, Latin America's largest country has been on tenterhooks wondering what would become of its most important company.

The country's dominant oil explorer, refiner and importer of fuel is at the centre of a corruption scandal in which former executives allegedly colluded with contractors and politicians to loot billions from the company.

Failure to produce independently audited figures for the final two quarters of last year by the end of this month would have violated some of the covenants of Petrobras's large borrowings - it recorded net debt of $106.2bn at December 31. Missing this deadline would have set Petrobras on a path towards a possible technical default and created a systemic risk for Brazil's national accounts.

That threat was at least averted on Wednesday when Mr Bendine unveiled financial results that he said had been audited without qualification by PwC.

"The likely avoidance of debt acceleration at Petrobras would remove any near-term need of extraordinary support for the company, an event that would have increased the government's financial challenges," analysts at Moody's, the rating agency, said.

But any euphoria about the aversion of bankruptcy was swiftly replaced in Brazil by appalled wonder at the scale of Petrobras's losses. The company recorded a total one-off hit of R$50.8bn (US$16.8bn) - of which R$6.2bn directly related to continuing corruption investigations into the company and R$44.6bn of impairment charges connected to delays at its refinery projects and falls in the global oil price.

These charges drove the company to a net loss of R$21.6bn for last year compared with a profit of R$23.6bn in 2013.It ranked as the biggest nominal loss by any publicly-traded Brazilian company since 1986, according to the Economatica consultancy.

Once trusted by retail investors for its regular dividends, this year there would be no payout to preserve cash.

"Petrobras billions in the red is the biggest admission ever of corruption and bad management for a Brazilian company. [This is] a historic date," said Jose Roberto de Toledo, a columnist for newspaper O Estado de S. Paulo, on Twitter.

Mr Bendine said the financial results represented a conservative estimate of the company's losses. The corruption figure could grow, however, if the investigations reveal further schemes.

"If some credible revelation comes up that significantly alters [this value] of course we will have to review it," he added.

Mr Bendine seemed to backtrack on government promises that Petrobras would not sell off part of its crown jewel - the so-called pre-salt oilfields in the deep waters of the South Atlantic that the company discovered to much fanfare in 2007.

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"There are situations where we could look for a partner to help us in the exploration of [pre-salt] fields that are high-risk," he added.

Petrobras also said it would slash investments next year to about $25bn, down 37 per cent from its original forecast of $39.5bn.

While Petrobras has painted itself as a victim of the corruption scandal, Mr Bendine said the company was not going to take the matter lying down. He classed the R$6.2bn of losses related to the corruption investigation as "recoverable", adding that he expected Petrobras to begin to receive part of the money back in May.

The company hinted it might sue some of its former contractors for damages. This would help it offset some of the potential losses it is facing from investor lawsuits in the US, where it has a listing.

Lawyers said the matter was a timely warning to companies of the importance of ensuring their legal compliance was in order.

"We are advising Brazilian companies of all sorts on implementing compliance programmes," said Andrew Haynes, partner and co-head of the Brazilian practice at Norton Rose Fulbright. "They are being scrutinised by investors as never before."

Other lawyers warned that with Petrobras co-operating fully with authorities, including most probably those in the US, the investigations were likely to extend to its contractors and suppliers round the world.

"This thing is probably going to grow larger very quickly," said Richard Smith, head of regulatory and governmental investigations with Norton Rose Fulbright in the US.

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