The document discusses the challenges facing Petrobras, Brazil's state-owned oil company. It notes that Petrobras has suffered huge losses in recent years due to mismanagement, corruption, and falling oil prices. The company's debt levels have risen dramatically and it faces threats to its revenue. The new business plan aims to cut costs through asset sales, reducing investments and focusing only on oil and gas exploration. However, the company still faces risks from high extraction costs for pre-salt oil and potential long-term reduction in oil demand and prices. Diversification away from oil into other areas like biofuels may be needed for the company's long-term survival.

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THE FUTURE OF PETROBRAS IS AT STAKE
Fernando Alcoforado *
Petrobras recorded in 2015 a loss of R$ 34.8 billion. From 2010 to 2014, Petrobras has
ceased to be the 12th to become the 416ª largest company in the world, according to US
magazine Forbes. Its market value that was US$ 270 billion regressed to the current
US$ 11 billion to a loss in Dollars greater than 95.9%. Its profit margin was 16.61% in
2010 regressed to -8.38% in 2015. The value of their shares, quoted at R$ 24.43 after
the election of Dilma Rousseff, regressed to current R$ 13.95 in the Ibovespa. To
aggravate the situation, the price of oil in international market fell from US$ 98.99 in
2014 to US$ 47.8 current that helped to reduce the company's revenues, especially with
the export of fuels. The disastrous Petrobras's economic performance resulted not only
from mismanagement and bad decisions of their leaders in investments such as the
acquisition of refineries in Pasadena in the United States and Okinawa in Japan and the
construction of the Abreu e Lima refinery in Brazil but also the corruption that meant an
assault on the company's coffers which is estimated to be approximately R$ 44.6 billion.
Disclosure of Petrobras balance referring to 2014, duly audited proves that the assault
committed by partisan company use by PT (Workers Party) governments was not only
of R$ 6.2 billion recorded in the balance sheet as financial losses due to the contract
signed between the overpricing company and "contractors club" source that irrigated
pockets of senior officials and campaigns of PT, some parties allied with PT and
political governments directly. Petrobras reported that another R$ 44.6 billion of losses
also resulted from the postponement of Comperj projects (petrochemical complex in
Itaboraí, RJ) and the Abreu e Lima Refinery (PE), caused, among various reasons for
problems in the chain of suppliers arising from the investigation of the “Operação Lava
Jato” that investigate corruption in Brazilian government [See the article O verdadeiro
custo da corrupção na Petrobras (The real cost of corruption at Petrobras) available on the
website <http://oglobo.globo.com/.../o-verdadeiro-custo-da-corrupcao-n...>].
Between August 2009 and May 2015, there was an excessive indebtedness of Petrobras,
which reached the rank of largest holder of debt in the world with a level that does not
stop growing increasing from R$ 115 billion in 2010 to R$ 522 billion in 2015. With
over 70% of its debt in foreign currency, Petrobras is extremely vulnerable to exchange
rate variation to it rather unfavorable. With the increase in debt, growing leverage, that
is, the size of the debt compared to the company's size. Analysts look to leverage
indicators to estimate the ability of a company to pay its debts. In addition to extremely
be indebted, Petrobras is being threatened by the reduction of its revenue from exports
of crude oil and sales of petroleum products such as naphtha and aviation fuel due to the
fall in the price of oil in the international market that today corresponds to US$ 47,8.
The reduction of its revenue prevents the further realization of investments in new
exploration and production projects of Petrobras.
The new Petrobras' business plan presented by the current Board of the company
foresees spending US$ 74.1 billion in the period between 2017 and 2021, 81% of the
value in oil exploration and production area. The business plan expands the sales
program of assets with sales of US$ 19.5 billion in the period between 2017 and 2018.
With less investment and more asset sales, the company plans to bring forward to 2018
the leverage reduction target (relationship between debt and cash flow) to 2.5 times,
which was considered ideal by rating agencies risk. Today, the index is 4.49 times. The
first business plan approved by the current management of Petrobras announces that

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Petrobras' vision for the coming years is to be an integrated energy company focused on
oil and gas.
The document formalizes the removal of the Petrobras biofuel production activities,
liquefied petroleum gas (LPG, the cooking gas), fertilizer and petrochemicals. It
provides for the restructuring of the energy business, consolidating thermals on asset
groups to "maximize" the value and the review of placement in lubricants. The portfolio
of plan investments prioritises exploration projects and oil production in Brazil, with
emphasis on deep water. In other business areas, investments are intended primarily to
maintenance of operations and projects related to the flow of oil and natural gas. In
2021, Petrobras expects to be producing 2.77 million barrels per day in Brazil.
Investment in exploration and production (US$ 60.6 billion), 76% will go to the
production development projects. In refining, they will be applied US$ 12.4 billion,
mainly in maintenance of operations and infrastructure for the transportation of oil
production.
Considering the fact that Petrobras faced with the predominance of weaknesses
(excessive indebtedness and operating losses) and threats in the external environment
(drop in oil prices in the international market and reduced demand for oil products in the
domestic market due to the economic recession), the recommended strategy for the
company would be the survival contemplating the adoption of operational cost
reduction measures and disinvestment that is being contemplated in the business plan.
The cost savings will be achieved on the one hand, with the concentration of business in
the oil and gas activities and on the other, with the rationalization of its operations. The
removal of the Petrobras biofuel production activities, liquefied petroleum gas (LPG),
fertilizer and petrochemical cooperate in this regard. The future of Petrobras depends on
the success with the implementation of this strategy.
Ensure the survival of Petrobras is the first step to be taken to create the conditions to
promote its future development avoiding thus its liquidation or the sale or privatization
of the company. The survival strategy will enable Petrobras to strengthen economic and
operationally to take advantage of opportunities for further expansion with the adoption
of the development strategy that would include the diversification of the company with
the market, production, financial and capabilities development. In other words, by
reducing its size and the scope of its activities at the time with the survival strategy,
Petrobras would strengthen to retake later, the ability to operate in the oil and gas
sectors and to diversify working in other areas.
It is important to note that the polygon of the pre-salt of Brazil may still contain oil and
gas undiscovered enough to meet the current needs of the world for more than five years
[See article Pré-sal do Brasil contém 176 bi de barris de petróleo e gás, diz estudo
(Brazil's pre-salt contains 176 billion barrels of oil and gas, says study) available on the
website <http://br.reuters.com/article/businessNews/idBRKCN0QF29920150810>].
The polygon, which covers most of the sedimentary sea basins of Campos and Santos,
contains at least 176 billion of barrels of resources undiscovered and recoverable oil and
natural gas (boe), according to a study by Cleveland Jones and Hernane Keys of
National Institute of Oil and Gas of the State University of Rio de Janeiro (UERJ). This
is four times more than 30 billion to 40 billion barrels that have been discovered in the
area. Despite this potential, the balance of the cost of extracting oil in pre-salt
sedimentary sea basins of Campos and Santos, which is between US$ 40 and US$ 45 a
barrel, can become unwieldy your future use because the price of oil in the international

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market can achieving less than the cost of the pre-salt extraction of oil. The world has
more oil than they need and want less and less oil due to environmental issues [See
Flavia Lima article Situação da Petrobras resulta de incompetência, diz David
Zylbersztajn (Petrobras' situation is the result of incompetence, says David
Zylbersztajn) available on the website <http://www.valor.com.br / business / 4521415 /
situation-the-petrobras-results-of-incompetence-says-david-Zylbersztajn>].
The threat of the pre-salt exploration to become uneconomic points towards his future
disinvestment and the need for diversification of Petrobras' business that should retake
biofuel production activities, liquefied petroleum gas (LPG) fertilizer and petrochemical
abandoned based on the current plan. In the future, the oil should be produced by
Petrobras for more noble purposes such as the production of fertilizers and
petrochemicals. In the future, Petrobras should concentrate its activities in the area of
biofuels that, in Brazil, offers great perspective as a substitute for gasoline and diesel
collaborating in this way to reduce the emission of greenhouse gases.
* Fernando Alcoforado, member of the Bahia Academy of Education, engineer and doctor of Territorial
Planning and Regional Development from the University of Barcelona, a university professor and
consultant in strategic planning, business planning, regional planning and planning of energy systems, is
the author of Globalização (Editora Nobel, São Paulo, 1997), De Collor a FHC- O Brasil e a Nova
(Des)ordem Mundial (Editora Nobel, São Paulo, 1998), Um Projeto para o Brasil (Editora Nobel, São
Paulo, 2000), Os condicionantes do desenvolvimento do Estado da Bahia (Tese de doutorado.
Universidade de Barcelona, http://www.tesisenred.net/handle/10803/1944, 2003), Globalização e
Desenvolvimento (Editora Nobel, São Paulo, 2006), Bahia- Desenvolvimento do Século XVI ao Século XX
e Objetivos Estratégicos na Era Contemporânea (EGBA, Salvador, 2008), The Necessary Conditions of
the Economic and Social Development-The Case of the State of Bahia (VDM Verlag Dr. Muller
Aktiengesellschaft & Co. KG, Saarbrücken, Germany, 2010), Aquecimento Global e Catástrofe
Planetária (P&A Gráfica e Editora, Salvador, 2010), Amazônia Sustentável- Para o progresso do Brasil e
combate ao aquecimento global (Viena- Editora e Gráfica, Santa Cruz do Rio Pardo, São Paulo, 2011),
Os Fatores Condicionantes do Desenvolvimento Econômico e Social (Editora CRV, Curitiba, 2012),
Energia no Mundo e no Brasil- Energia e Mudança Climática Catastrófica no Século XXI (Editora CRV,
Curitiba, 2015) and As Grandes Revoluções Científicas, Econômicas e Sociais que Mudaram o Mundo
(Editora CRV, Curitiba, 2016) .