A Petrobras offshore oil rig in the Campos Basin. Getty Images
Brazil’s largest oil workers union FUP began an open-ended strike on Sunday after over 100 days of unsatisfactory negotiations with Petrobras. As if Brazil is not having a hard enough time already with its economy in recession, austerity measures biting, and a debilitating corruption scandal still-unfolding, now the union stands opposed to any reform measures necessary to salvage heavily-indebted Petrobras. On Friday, FUP said it wants asset sales stopped, work on refineries resumed, local content rules maintained, and a guarantee that Petrobras remain the sole operator in Brazil’s sub-salt offshore oil area.
Petrobras said in a statement that the strike won’t affect production or deliveries to the market, but it is in damage-control mode. The oil firm plans to continue holding talks with the union and has offered an 8.1% wage increase. But to reduce its crushing debt burden of over $130 billion — the highest of any energy firm — Petrobras is still planning major asset sales. Some $700 million will be divested this year, and up to $15.1 billion will be sold by the end of 2016. Last month the firm also announced it will cut its 2015 investment budget from $28 billion to $25 billion, and its 2016 budget from $27 billion to $19 billion. Aside from the corruption scandal costing it billions of dollars (the full extent is not yet known), lower-than-expected oil prices have hurt Petrobras and continue to make its future outlook uncertain.
The market is not optimistic on the firm — its debt was downgraded in September to junk status by ratings agency S&P. And FUP is convinced that Petrobras’ asset sales and scaling-back of future investments will lead to thousands of layoffs. While oil prices were high, the firm could afford to have local content requirements and extensive domestic job creation and investment. But now oil prices are low just as Brazil’s economy is in a tailspin, and job cuts are politically toxic.
For the time being, Petrobras said it is “evaluating the impact” of the strike and “taking all necessary measures to maintain production” at the affected facilities, including activating contingency teams. But there is no good solution here, and things look like they’ll get worse before they get better.
