Brazilian President Lula fires Petrobras CEO after dividend dispute

(Bloomberg) — Brazilian President Luiz Inacio Lula da Silva has shaken up the leadership of the country’s state-owned oil company, firing the chief executive and one of his top deputies after months of fighting.

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Petroleo Brasileiro SA CEO Jean Paul Prates, who had argued with the president over dividend payments, was officially dismissed from his position at a board meeting on Wednesday. The company’s chief financial officer, Sergio Caetano Leite, was also fired.

Lula, as the president is known, plans to appoint Magda Chambriard, the former director of Brazil’s oil and gas regulator, to replace Prates. Clarice Coppetti, executive director of corporate affairs, will assume the role of interim CEO, Petrobras said.

Market reaction was swift and negative as investors prepared for a new CEO who analysts say may be more willing than his predecessor to put the president’s priorities ahead of those of shareholders.

Petrobras preferred shares fell as much as 8.3% in Sao Paulo, the biggest intraday drop since March 8, when the announcement of a lower-than-expected dividend payout disappointed markets and caused a widespread rout Brazilian assets.

“The sudden change in leadership adds significant uncertainty,” Regis Cardoso, an analyst at XP Investimentos, wrote in a note to clients.

See also: Next Petrobras CEO is an oil veteran who champions exploration

Prates’ departure ends months of speculation that his days at Petrobras were numbered. Tensions escalated earlier this year when he refused to align with government-appointed board members who voted to withhold payment of extraordinary dividends to shareholders accustomed to stable returns.

Prates was applauded by employees Wednesday afternoon in Rio de Janeiro as he left the company’s downtown headquarters.

“I’m just sad,” he said, while defending his track record on fuel prices and investments. “The future of the company is on track with the energy transition, good projects in the portfolio to analyze.”

The dismissal could add to concerns that Petrobras is under increasing pressure from the ruling Workers’ Party to help revive Brazilian industry and create jobs, at the expense of shareholders. The dividend drama shocked some investors who saw it as a sign of growing political interference in Latin America’s top oil-producing country.

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After weeks of debate, Petrobras finally approved returning half of its available cash to investors in the form of a special dividend, as initially proposed by the Prates board. The government is the largest shareholder and dividends have helped close a budget deficit at a time when spending is rising.

Prates told the executive committee before the official announcement that Lula had asked to return to his position. In a message seen by Bloomberg, he declared that his mission had been “prematurely interrupted”, blaming Alexandre Silveira, the minister of energy and mines, and Rui Costa, Lula’s chief of staff, with whom he was hit.

A former senator in Lula’s left-wing party and having worked in the oil industry, Prates became chief executive in January 2023, shortly after Lula took over the presidency. Petrobras had fired six CEOs, including interim CEOs, from 2019 until Prates’ appointment.

Under his leadership, Petrobras changed direction, halting asset sales, protecting consumers from sharp swings in global oil prices, and pouring billions of dollars into investments in the energy transition. The company recently increased its five-year business plan budget to $102 billion, its biggest spending plan since 2015.

Petrobras said it received notice from the Energy Ministry late Tuesday confirming it would nominate Chambriard to replace Prates.

The engineer began her career at Petrobras in 1980, where she worked for 22 years, before joining Agência Nacional de Petróleo, Gás natural e Biocombustíveis, Brazil’s oil regulator, known as ANP. She was appointed to head the agency by former Brazilian President Dilma Rousseff in 2012 and held the position until 2016.

Like Prates, Chambriard was part of Lula’s 2022 energy transition team. At that time, she had already been identified as a possible candidate for Petrobras’ top job. The former ANP leader defended the need for Brazil to explore for oil in new areas, including the equatorial margin and the Pelotas Basin.

“The pre-salt boom is over. It’s time to look for new frontiers so Brazil can continue producing oil,” she told Bloomberg in an interview in December.

Chambriard also supports more investment in domestic oil refining and wants to see more products processed in Brazil rather than exported as raw materials.

Prates’ ouster marks a deterioration in Petrobras’ governance, and Chambriard’s mission will not be easy, Citigroup Inc. said in a note. She “comes with the pressure to realize the investment plan and accelerate the expansion of Petrobras’ investments”, which could lead to lower dividend payments, he added.

–With help from Rachel Gamarski, Peter Millard and Leda Alvim.

(Updated to include CFO departure in second paragraph)

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