Petrobras takes $17bn charge in wake of scandal

Brazilian state-run oil company Petrobras reported its biggest-ever loss, the result of a $16.8 billion write-down in the wake of a massive corruption scandal.

The write-down is one of Petrobras’ first concrete steps to restore access to capital markets since the scandal forced the delay of audited financial statements in November. The company’s financial difficulties have led to debt downgrades by major ratings agencies.

Even so, Petrobras has already said it will be forced to cut investment aimed at developing offshore oil discoveries that are among the world’s largest in four decades. Those discoveries had led investors to drive the company’s market value up to nearly $300 billion in 2008 and helped sell $70 billion of new stock in 2010. Petrobras is worth only $56 billion today.

While the write-down helps shine a light on one of the company’s darkest moments, challenges remain for the company and Brazil as whole.

In addition to harming Petrobras, Brazil’s biggest company, the scandal has hamstrung two dozen of Brazil’s largest construction and engineering firms, bankrupting at least five, and throwing thousands out of work.

It also is the biggest setback yet to a $44.2-billion-a-year Petrobras expansion plan that President Dilma Rousseff and her Workers’ Party (PT) have used to justify firmer state control of natural resources and increased intervention in the economy.

Petrobras, whose annual investment is frequently double the government discretionary infrastructure budget, said that it would cut 2015 capital spending to $29 billion, 34 percent below the planned average for each of the next five years. Bendine said it would cut spending by another 13 percent to $25 billion in 2016 and unveil a new strategic plan in 30 days.

Investors questioned the true value of Petrobras assets after a wave of arrests last year of top executives from the oil company and its contractors building billions of dollars-worth of refineries, drilling ships and other complex oil and gas infrastructure.

Petrobras had reported unaudited third-quarter results in January, but the delay in publishing audited accounts cut the company off from financial markets. Under contracts for more than $50 billion worth of global bonds, failure to publish audited fourth-quarter results could have resulted in default and forced early repayment of those debts.