Sérgio Caetano Leite, the oil company’s chief financial and investor relations officer, says that the pilot project involving 157 million shares is 86% complete

05/10/2024

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Sérgio Caetano Leite — Foto: Leo Pinheiro/Valor

Petrobras is studying a new stage in its share buyback program, which began last year, Sérgio Caetano Leite, the company’s chief financial and investor relations officer, told Valor. “All the big oil companies, the counterparts, do it and treat the buyback as shareholder remuneration,” said Mr. Leite.

The first step was taken in 2023 and involved a pilot project of around 157 million preferred shares, which is 86% complete, Mr. Leite said. “We set August as the deadline to finish [the program], and the results are exceptional because, on average, these buyback programs stop at 70%, 75%,” he compared.

The executive spoke to Valor between appointments at the Offshore Technology Conference (OTC), the oil industry’s main event, in Houston, Texas. Mr. Leite said that the company has enough cash to finance the planned investments, without the need to resort to the financial market. The company recently issued $250 million in bonds abroad to exchange expensive debt for cheaper debt. According to the executive, the company is monitoring the market for similar operations.

Mr. Leite also said that volatility explains the long period without any change in fuel prices: diesel oil has not been adjusted for more than 100 days, while gasoline has had no change in refineries in the last six months. The volatility, he said, prevents the company from seeing a clearer scenario to define the direction of the prices of oil products. Read below the main excerpts from the interview:

Valor: Petrobras carried out a share buyback program last year. Does the company have any plans for a new round?

Sérgio Caetano Leite: The body that authorizes the buyback is the board of directors and there is prior governance: we do internal studies, which go through committees. The management team approves [the proposal] and it goes to the board, which approves [the operation]. Share buybacks were included as another form of shareholder remuneration. All the big oil companies, the counterparts, do it and treat the buyback in this way, as shareholder remuneration. We approved this pilot project, around 157 million preferred shares, and we have already surpassed 86% of the total number of shares put up for repurchase. We set August as the deadline to finish [the program], and the results are exceptional because, on average, these buyback programs stop at 70%, 75%. We respond to Brazilian legislation and U.S. legislation, CVM (Securities and Exchange Commission of Brazil) and SEC (U.S. Securities and Exchange Commission). So we had to be careful before starting this program, hence the decision to do the pilot first. One of the characteristics of the buyback program is that if you are going to release any notice of material fact, any press release, anything that could impact the share price, you have to stop the buyback. It takes two or three days to be able to repurchase. Petrobras issues more than two announcements a week. Another characteristic is that if the company’s board of directors learns of something that could affect the share price, even if they haven’t communicated it, they have to stop [the buyback operation].

Valor: Companies usually buy back shares when they believe they are cheap. Do you agree with this view?

Mr. Leite: It’s a sign, but note that in the case of Petrobras, we bought and canceled the shares, we didn’t hold them in treasury to sell again later. That would be legal, but it wasn’t our strategy. Some companies buy back shares and hold them when they see that prices are low. This is not the case, as Petrobras has reduced the number of shares on the market. That’s why it’s considered a form of remuneration. A Petrobras shareholder has two forms of remuneration. One is dividends and the other is appreciation. If I bought a set of shares for R$100, the end of the year comes and they are worth R$150, then we distribute value in the form of earnings in addition to dividends. They are also divided by the number of shares. When you reduce the share base, you can earn on the appreciation and the next dividends will be divided among a smaller number of shares. That’s why it’s considered shareholder remuneration. We are discussing the new phase of the program. The idea is to propose it to the board of directors and, if approved, we will continue to expand the program.

Valor: Can the discussion about dividends return in the face of higher oil prices?

Mr. Leite: We’ve chosen to distribute extraordinary dividends at the end of the year, and there’s a reason for that: it’s because you visualize the full year. You can have good quarters and bad quarters. To be clear, for years we’ve only released extraordinary dividends at the end of the year because we’ve been able to see the full picture. The dividend formula is in place and until someone decides to change the policy—and this decision was not made—it [the current policy] will be applied and the extraordinary dividend will be paid. Of course, if oil prices surge, we generate more cash because we sell abroad at a higher price.

Valor: Oil prices are volatile. Does this make setting fuel prices opaquer?

Mr. Leite: Since we revised our commercial strategy last year, we have maintained and reinforced the objective of not passing on volatility directly to the end customer, for various reasons, including the fact that it’s not good. Brazil runs on diesel. Imagine a truck that leaves home with one price, calculates the freight, the price of fuel changes halfway through, and when it gets there [at the destination] to return it’s another freight price. It makes no sense. And it’s bad for Petrobras’s cash flow predictability. If we sell assuming volatility, you can sell with the price down and lose money, or sell a contract [with the price] up and leave the market, because the competitor starts putting in more product.

Valor: So what is the strategy?

Mr. Leite: The strategy has a variation range and we follow it. As long as it’s in the range, we don’t make any sudden moves. When there is a structural change, that’s the time to make the move. Petrobras always ends up being the target of comments, but what happens is that companies, associations, and operators have no way of calculating Petrobras’s price [exactly]. Petrobras is the most efficient fuel importer on the market because of its infrastructure. We have logistical and competitive advantages. Our policy dictates that we shouldn’t sell below the marginal value and, when Petrobras is at the marginal value, it has a very good margin. We keep observing the market every day, every week. When we have to change, we will.

Valor: The company used to be the world’s most indebted oil company and today it’s holding its own. Is there room for Petrobras to take on more debt?

Mr. Leite: At Petrobras, debt is made up of two parts, financial and accounting, which comes from IFRS [International Financial Reporting Standards] rules. Our debt is made up of contracts, such as Floating Production, Storage, and Offloading (FPSO) units, helicopters, all kinds of ships. The financial debt comes from issuing bonds. And 100% of the investments in Petrobras’s strategic plan, those R$500 billion, just over $100 billion, are paid for with cash generation. Petrobras doesn’t raise money for investment. The strategic plan is funded with the company’s own money. Up until now, capital discipline has meant that the company has financed the entire plan with its own cash. Last year, Petrobras won two or three awards with a global bond we issued, for $250 million. A pool of 13 or 14 banks handled the operation. We got low rates, and we were equivalent to AAA [investment grade] companies. The market recognized the quality of the securities and we had overdemand. If we issued twice as much, people would buy it. We haven’t issued since 2020 or 2021. And we did it for several reasons. One was to see how the market was viewing the company. And because the rates were in our favor. It’s important to be in the debt market. We had a financial debt of $28 billion, we issued R$1.25 billion [$250 million] and today we owe $27 billion. In the past, rates were higher, we borrowed R$1.25 billion and used the money to buy bonds. We call this debt curve management. Whenever the market shows a rate mismatch in our favor, when there is an opportunity to lower the debt, we tap the market and buy the old debt. We don’t need to issue to do projects. That’s with our cash reserves, it [the cash flow] gives [space] and there’s leftovers, which you see in the form of dividends.

*Por Fábio Couto — Houston

Source: Valor International

https://valorinternational.globo.com/