11-15 March 2019 38th Executive Conference and Related Events New World of Rivalries: Reshaping the Energy Future

Leadership Dialogue

12 March, Tuesday

Roberto Castello Branco, chief executive officer, Carlos Pascual, senior vice president, IHS

Summary Petrobras CEO Roberto Castello Branco joined Carlos Pascual of IHS Markit in a leadership discussion Tuesday at CERAWeek that shined light on the world-class vision Branco has for simultaneously improving the risk perception of Petrobras and Brazil through partnerships, divestitures and improvements in technology. Branco took Petrobras’ top office on Jan. 3, moving out of academia into the corporate world. “We have a lot of potential to create value for our shareholders,” Branco said. “My dream is to be able to implement a transformation agenda for Petrobras to create a much stronger and much more efficient entity, and one of the best companies in the world of oil and gas.” To help create that value, Petrobras will focus on improving the allocation of capital by targeting the most productive investments. Branco said the company is following the “natural owner” concept, and will focus on those assets. He noted that there are some mature fields offshore and in shallow waters as well as some and downstream assets that would be ripe for divestiture. Divestiture will also create some healthy competition in Brazil’s energy market while also reducing some risk, Branco said. Petrobras owns 90% of refinery capacity in Brazil, and Branco said that in a free society, there was no room for monopolies. “We want to create a market in Brazil. We don’t want to be alone. We want companions in this market, competitors in refining oil,” Branco said. Pascual pivoted the discussion to Petrobras’ strategy on pursuing a deleveraging program involving commodities assets that might pose high risk due to price volatility.

11-15 March 2019 38th Executive Conference and Related Events New World of Rivalries: Reshaping the Energy Future

“We must meet two basic requirements in an industry that is riddled with volatility. That is to be a low-cost producer and to have low leverage,” Branco said. “When prices are high, you create a lot of value, but when prices are down you will not lose sleep.” Branco also stressed the importance of combating corruption by managing the rule of law and enforcing transparency while also striving for agility. “We want to focus on the creation of value while also preserving safety. Compliance is a lever to value creation and not a block to value creation. So, we are trying to balance those two goals,” Branco said. One transformation Petrobras is prioritizing is engaging technology and digitalization. “We believe digitalization would strengthen the safety of operations and contribute to a significant cost reduction,” Branco said. “It’s a priority. We are behind the requirements in a modern world and a modern economy.” Petrobras was also looking for opportunities within an “underdeveloped” gas industry in Brazil, which also aligns with Branco’s vision of environment preservation. “We are joining forces with the government to promote some regulatory and possibly legal changes in order to have a more open market to create conditions for the flourishing of this important industry,” Branco said. The exploration of natural gas can help meet the supply needs of a growing population while also fostering economic growth, transforming the Brazilian economy while also protecting the environment, Branco said. In discussing consumer fuel prices, Branco said volatility was problematic to the cargo transportation industry, and that Petrobras has adopted a hedging policy to help with large fluctuations in diesel fuel and gasoline prices. He also suggested that Brazil consider a policy similar to the U.S. Department of Energy’s National Retail Average, which was created in the 1970s and served as a fuel surcharge baseline for carriers during price volatility caused by the oil crisis. In closing, Branco said Petrobras and the Brazilian government were united in a common goal to transform the nation and return it to the road to prosperity. --Lisa Street, [email protected] Copyright, IHS Markit 2019