Petrobras upstream success eclipsed by shakeup

OREANDA-NEWS. February 06, 2015. Brazil's state-controlled Petrobras has made a new oil find in the prolific Campos basin, the most recent in a string of deepwater discoveries that have done little to divert attention away from a worsening crisis at the company.

Petrobras says it has struck heavy oil in the Campos basin's post-salt BM-C-35 block, which the company operates with a 65pc stake. BP holds the remaining 35pc stake.

The aging Campos basin currently accounts for around 75pc of Petrobras' 2.12mn b/d domestic output, but its share of total output is expected to diminish with the start-up of new production units in the Santos basin's sub-salt regions in the coming years.

Plans to expand production in the Santos basin have been called into question in recent weeks as Petrobras sinks further on a widening corruption scandal.

Earlier this week, Maria das Gracas Foster, Petrobras chief executive since 2012, and five directors resigned, becoming the highest-ranking victims so far in what is being called Brazil's biggest corruption scandal. Last night, Petrobras revealed the names of those directors, which includes chief financial officer Almir Barbassa; upstream director Jos? Formigli; downstream director Jos? Cosenza; gas and power director Jos? Santoro; and, engineering and services director Jos? de Figueiredo.

Only Jo?o Elek, the recently appointed director of the newly created governance division, and Jos? Dutra, Petrobras' chief executive between 2003 and 2005 and its current corporate services director, remain in their executive posts.

The search to identify replacements for virtually all of Petrobras' operational directors has reached a frenzy pitch ahead of the company's board meeting scheduled for tomorrow, when new directors are to be picked.

Though none of the current directors were implicated in an alleged scheme that diverted funds from inflated contracts to Brazil's ruling Workers' party (PT) and other coalition forces, their removal was seen as essential for the company to regain credibility. Markets responded positively following the announcement, but serious problems remain.

Petrobras plans to push domestic crude production to 4.2mn b/d by 2020, almost double current production, with a large part of that growth coming from massive sub-salt deposits. The company has already said it would scale back investment spending this year as a result of lower oil prices, but analysts are concerned that the corruption scandal could interfere with Petrobras' ability to meet its long-term production goals.