(Bloomberg, Sabrina Valle and Peter Millard, 9.May.2019) — Soon after taking over as chief executive officer of Brazil’s state-controlled oil giant Petrobras, Roberto Castello Branco noticed that there was a printer for each employee in a department, and ordered a review. It was just the beginning of a crusade against nonessential spending. Since then, he’s announced $8.1 billion in cost cuts through 2023, including plans to trim 4,300 of the company’s 47,222 workers, excluding contractors, in a buyout program.
The University of Chicago-trained CEO is also closing several foreign offices and is even getting rid of the six armored Ford Fusions he and past Petrobras CEOs had at their disposal — with two drivers each. Instead, Castello Branco started to use Uber when traveling for business overseas and, in an interview in March, complained about a $50 cab fare he had to pay to go from his hotel to Petrobras’s Houston office.
“We want to create a culture of low costs in which every dollar counts,” he said then. Castello Branco spoke while contemplating the view of Richmond Avenue, in Houston, where Petrobras had one of its largest foreign offices with six floors and a big sign of the company in a garden outside of the building. He looked around and said the space was too large. Tuesday, Petrobras announced it would reduce it to one floor, cutting the rent to $600,000 a year from $5.8 million.
Petrobras is also closing offices in New York, Mexico City, Libya, Angola, Nigeria, Tanzania, Iran and Tokyo, and is also vacating entire buildings in Rio and Sao Paulo to concentrate the workforce at its iconic headquarters in Rio’s downtown, where the cost per desk is cheaper.
The determination to slash costs and debt at a company that used to be the most indebted in the industry hasn’t come without criticism. Castello Branco has sold a number of stakes in large oil fields, which were off limits during previous left-wing administrations, and wants to leave entire businesses like petrochemicals and end Petrobras’s near monopoly on refining and natural gas. At a press conference on Wednesday, he went on the defensive.
“Some people say we’re chopping up the company, that’s a cliche. We’re managing a portfolio, and the company will grow from it,” Castello Branco told reporters.
Spending soared across the industry during the early part of the decade when oil prices were in excess of $100 a barrel and competition for exploration acreage, equipment and personnel drove up costs. State-controlled producers like Petrobras — the government owns a majority of its voting shares — were under less pressure than international peers to keep spending under control.
“Compared to an Exxon, the type of company Petrobras likes to compare itself to, there was probably more fat to cut,” said Ruaraidh Montgomery, a director at Houston-based energy research firm Welligence Energy Analytics. “Petrobras is a national oil company, there are a lot of legacy costs and bureaucracy associated with it.”