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UPDATE 2-Petrobras CEO says Rousseff refused offer to resign on scandal
December 17, 2014 / 2:45 PM / in 3 years

UPDATE 2-Petrobras CEO says Rousseff refused offer to resign on scandal

(Adds Petrobras comment, impact of scandal on company, expected impact on 2015 spending, output)

By Jeb Blount

RIO DE JANEIRO, Dec 17 (Reuters) - Petroleo Brasileiro SA’s Chief Executive Officer Maria das Graças Foster said on Wednesday that she had offered to resign because of a widening alleged bribery scandal but that Brazil’s President Dilma Rousseff had turned her down.

“I need to be investigated, we all need to be investigated, that takes time,” Foster told journalists at company headquarters in Rio de Janeiro, referring to the U.S. and Brazilian legal teams hired to run an internal investigation.

“The president thought that I should stay,” added Foster, who has been CEO for nearly three years, before which she headed up its gas and energy unit.

Questions about the CEO’s future come as the scandal bites into the company’s finances, operations, share price and $221 billion five-year expansion plan, one of the world’s largest corporate spending programs.

Prosecutors allege that executives at Petrobras, as the company is known, conspired to inflate the price of refineries, ships, advertising and other goods and services. They also allege contractors then kicked-back a percentage of the inflated contracts to executives, politicians and political parties as bribes and campaign contributions.

To preserve cash and avoid new borrowing, Petrobras plans to slash investments in 2015 favoring an increase in output from existing areas rather than pumping money into the exploration of new prospects, exploration and production division chief Jose Formigli said.

“In principal spending will be lower in 2015 than in 2014,” Foster said.

With Petrobras revenue equal to about 6 percent of Brazil’s gross domestic product, a Petrobras slowdown could further hurt an already stagnant Brazilian economy.

Since the scandal broke, Petrobras’ share prices have fallen nearly 60 percent in the past two months and is trading near its lowest level in a decade.

Meanwhile, Petrobras struggles to calculate losses related to an estimated $10 billion bribery, contract fixing and political kick-back scheme that has prevented the company from releasing third-quarter results.

Auditor PricewaterhouseCoopers in November declined to certify the company’s accounts until Petrobras determined how much the value of its assets had been inflated because of the corruption, a situation that could further complicate the company’s finances.

Already the world’s most-indebted and least-profitable major oil company, failure to release audited annual results by April could trigger early repayment of as much as $11 billion of bonds and a $5.8 billion local bank loan.

With the scandal having led to fraud and corruption charges against nearly 40 people, including former Petrobras executives, many contractors have found it hard to borrow money and are laying workers off. That has put in jeopardy the company’s commitments to buy a majority of its goods and services in Brazil.

“We are concerned about the impact of this on companies (in Brazil) that we work with. We need them to maintain our output goals,” Formigli said. “If we have to we will seek out international suppliers.”

Formigli warned though that while spending cuts will not immediately impact oil and gas output, it could lead to a reduction in output in the longer term.

Potential output cuts could be exacerbated by the recent fall in the price of oil to more than five-year lows, he added. (Reporting by Jeb Blount and Marta Nogueira; Writing by Caroline Stauffer and Jeb Blount; Editing by Lisa Von Ahn,; Stephen Eisenhammer, Diane Craft and Christian Plumb)

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