Brazil's Petrobras vows to investigate graft allegations

Brazil's state-run oil company Petroleo Brasileiro SA vowed on Monday to fully investigate a money-laundering scandal that has rattled the company's shares, and caused the biggest crisis to date for President Dilma Rousseff's government.

In their first public comments since a former Petrobras executive was arrested in connection with the scandal last Friday, Chief Executive Maria das Gracas Foster and other company leaders said they had hired legal consultants to investigate the allegations.

Petrobras delayed the release of its third-quarter earnings last week following accusations that the company systematically overpaid for assets and work by contractors. The excess funds were then funneled to political parties including Rousseff's ruling Workers' Party, prosecutors said.

The company will reassess the value of some assets, based on whether bribes were part of the purchase price, and could take accounting losses accordingly, executives said.

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As a result, fully audited quarterly results might not be available until the end of January, they said.

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That raises the prospect of a long period of uncertainty for a company that was once the crown jewel of Brazil's economy, but has, in recent years, become a symbol of the country's fall from grace.

"We are working with all our strength to have the (audited) earnings report ready and to cooperate with the investigation in the hope that it is resolved quickly," Chief Financial Officer Almir Barbassa said during a conference call with analysts.

Rousseff was chairwoman of the Petrobras board of directors for seven years through 2010, when much of the alleged corruption took place. While she has denied any role in the wrongdoing and is not facing charges, the scandal could further weaken her government at a time when it faces a stagnant economy and falling investor confidence.


On Friday, Brazilian federal police arrested the former Petrobras executive and several leaders of powerful Brazilian construction and engineering companies in connection with the scandal.

Rousseff, who won reelection on Oct. 26, has pledged a thorough investigation and said on Sunday the case could help change Brazil's culture of corruption.

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On Monday, executives addressed the allegations as soon as the call began, without being prompted by participants.

"We need to have the same respect for our internal governance as we need to have for our technical operations," Foster said.

Petrobras' preferred shares, its most-traded class of stock, fell 3 percent on Friday and shed another 0.5 percent midday Monday. They have plummeted 18 percent this year.

Brazil's currency has also fallen to near 9-year lows amid uncertainty over the outlook for Petrobras and the economy, although it strengthened about 0.5 percent on Monday.

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Investors have been concerned that the world's most-indebted major oil company risks a technical default on about $12 billion dollars in bonds if it doesn't report audited earnings by the end of the year.

Analysts and traders warned that potential corruption-related write-downs could lead to Petrobras being stripped of its investment-grade credit rating.

In a sign of the company's troubles, Petrobras said in a statement shortly before the call that it would miss its oil production target for 2014 - with output growing between 5.5 percent and 6 percent, short of its goal of 6.5 percent to 8.5 percent.

The corruption scandal is the latest in a string of set-backs for Petrobras. It has seen its market value fall by more than $200 billion, or about three quarters, since 2008.

Investors have discounted its prospects after hundreds of billions of dollars spent on expansion failed to deliver promised oil and gas output.