Dredging it up

Petrobras poised to extract itself from deep water

Petrobras specialises in extraction from deep water and may be poised to start the process on itself. The $57-billion Brazilian state oil giant on Wednesday plans to announce long-delayed results from last year and quantify the costs of a scandal. Along with new bosses and financing, Petrobras could emerge from its murky mess, or at least stop from sinking any further.

Like the workers clearing dead fish from Rio's intended Olympic rowing venue, Petroleo Brasileiro has a big, malodorous job. It is enmeshed in a corruption probe involving inflated contracts that were allegedly used to funnel money to political parties and individuals. President Dilma Rousseff's Workers' Party is implicated, though she herself has not been accused, despite chairing the Petrobras board when much of the alleged malfeasance happened.

The company needs to publish audited results before the end of April to avoid possibly jeopardising loan terms that could push it into default. Estimates vary about how big a charge Petrobras will take, but its share price has risen some 60 per cent over the last month as expectations build that it can leave the worst of the crisis behind.

Petrobras insiders have pegged the graft costs at up to 6 billion reais, or $2 billion, according to local newspaper Folha de S.Paulo. That seems low. JPMorgan estimated a one-off asset impairment of $10 billion. Now-departed Chief Executive Maria das Graças Foster said earlier this year it was too hard to separate the cost of graft from other factors such as the falling oil price. Unless Petrobras grossly miscalculates, a credible number should help further appease investors.

What's more, the company's management - long padded with political appointees rather than industry experts - is getting overhauled. And Petrobras, which is cut off from debt markets, says it has covered its 2015 financial needs, albeit with funds mainly from state-run lenders. Asset sales and curbed investment will help, too. The company, whose market capitalisation in 2008 reached $300 billion, is now valued at just 2.8 times expected cash flow. Peers fetch a median of 7.7 times, according to Thomson Reuters data. That gives some indication of the upside of Petrobras rising from the depths.