Petrobras Exec: I Took Bribes For 18 Years

By Dimitra DeFotis

A Petrobras official told a congressional panel Tuesday that he began accepting bribes from some of the countys top construction firms 18 years ago, AP reports.

Reuters A Petrobras refinery.

The confessions of Pedro Barusco, a former executive of Brazils state-run energy company, Petroleo Brasileiro (PBR ), were televised. He was part of group of people participating in the alleged scheme in which big construction and engineering firms paid at least $800 million in bribes and other funds in return for inflated contracts with the state-controlled energy company. Barusco claims as much as $200 million was siphoned to the ruling Workers Party.

Barusco has agreed to repatriate $100 million stashed overseas as part of a plea bargain.

What has not been established: that some of the funds contributed to President Dilma Rousseff s campaign last year. But she was the head of the Petrobras board during the alleged scheme. Some have called already for impeachment proceedings, and long-planned protests are scheduled for this weekend. See Brazil: Rousseff Impeachment Debate Fueled By March Demonstrations and Former Petrobras Executive Tells Congress of Bribes .

The iShares MSCI Brazil Capped ETF  (EWZ ) fell 1% Tuesday, while the iShares MSCI Emerging Markets ETF  (EEM ) fell 2%. But Petrobras shares fell 5% to $5.30 in U.S. trading. The stock is now down 50% over 12 months.

Mar 6, 2015

9:49 AM ET

Brazil Stocks Lower As Petrobras Scandal Erupts & Politicians Take Heat

Brazils Supreme Court today is expected to unseal a list of 54 names, including congressmen and other federal officials, who could be investigated in the multi-billion-dollar Petrobras scandal.

Agence France-Presse/Getty Images Brazils President Dilma Rousseff.

Leaks suggest that the list contains the names of at least two powerful figures: Eduardo Cunha and Renan Calheiros. speakers of the lower house of Congress and the Senate, respectively. Both belong to the main partner of [President] Dilma Rousseff’ s Workers’ Party in the governing coalition. Both men deny doing wrong.

With the real weakening this week, ratings agencies meeting with the government and economic woes, shares of state-controlled Petroleo Brasileiro (PBR ) are down nearly one point  1.6% at the open, and have fallen more than 8% this week. The iShares MSCI Brazil Capped ETF  (EWZ ) is down 2% at the open,and more than 9% this week, while the iShares MSCI Emerging Markets ETF  (EEM ) is down 0.7% today and nearly 3% on the week.

Standard & Poors wrote Wednesday:

The ongoing investigations of corruption at Petroleo Brasileiro (BBB-/Stable/) and the Brazilian engineering and construction (E&C) companies should not materially harm the countrys financial system. Although we understand Petrobras still benefits from a good relationship with domestic banks, both public and private, we see a more restricted access to credit among many E&C companies and the oil and gas suppliers. Petrobras banning of the 27 contractors from bidding on the companys new contracts also plays a role in the banks scrutiny over the sector.

The credit quality of the E&C companies under investigations varies and depends heavily on the backlog diversification, track record of completing works on time and within budget, capacity to absorb working-capital swings, cash position, and short-term refinancing needs. Petrobras represents less than 5% of the contracted projects among most of the largest builders (such as Odebrecht. Construtora Andrade Gutierrez  and Camargo Correa ). However, the state-owned oil and gas giant is the largest client of many Brazilian small and niche E&C companies. Therefore, we expect those smaller companies to suffer the most from the sectors current difficulties, because they could struggle to replenish their backlogs while facing working-capital volatility. In addition, these companies usually have lower financial flexibility to withstand high-impact events

Standard & Poors expects the countrys large banks to increase provisioning levels in 2015 for prudential reasons or due to actual defaults, such as OASs, which could come as a result of credit quality deterioration not only among some E&C companies but also in the oil and gas supply chain, which is highly exposed to Petrobras.

Shares of Brazils Itau Unibankco Holding (ITUB) are down 1.2% this morning and more than 8% this weel. Among real estate companies in Brazil:

• Cyrela Brazil Realty  (CYRBY  and CYRE3.Brazil)  is down 5.2% this week  through Thursday in U.S. trading
• PDG Realty  (PDGRY  and PDGR3.Brazil) was down 4.3% week to date in U.S. trading
• Gafisa  (GFA  and GFSA3.Brazil) was down 9.3% in U.S. trading
• Rossi Residential  (RSID3.Brazil) was down 8.8% in local trading

• Tecnisa  (TCSA3.Brazil) was down 0.4% in local trading

Jan 14, 2015

1:34 PM ET

Petrobras Lower After 3rd Exec Arrested In Brazil

Brazil federal police investigating corruption at Petrobras arrested a third insider.

European Pressphoto Agency A Petrobras platform in the Atlantic.

The news is dragging down equities: shares of the state-controlled exploration and refining company Petroleo Brasileiro ( PBR ) are down 4.7% today, while the  iShares MSCI Brazil Capped ETF  ( EWZ ) is down fractionally. The construction company  Gafisa  ( GFA ) is down 2% today, while engineering services company  Mills Estruturas e Servicios  ( MILS3 .Brazil) is down nearly 8% in local trading.

A former director of the state-run energy companys international division, Nestor Cerveró, was arrested at a Rio de Janeiro’s international airport as he arrived from London, The Wall Street Journal  reports. In the investigation, dubbed Operation Car Wash, authorities allege Petrobras executives accepted bribes from suppliers and construction companies.

On Tuesday, Moodys issued a dim outlook for debt tied to oil drillers and energy service companies with Petrobras contracts. See our post, Petrobras At Heart Of Moodys Oil Debt Review .

More from WSJ here on the latest Petrobras arrest: Brazil Police Arrest Another Ex-Petrobras Executive (subscription required.)

Dec 4, 2014

10:01 AM ET

Mexico Energy Reform: $50 Billion Opportunity For U.S. Engineering Cos.

Reuters A Pemex gas station in Mexico City.

Mexico could attract $50 billion in private and foreign investment by 2018 as it privatizes its energy industry, and thats a big opportunity for U.S. engineering and construction companies south of the border.

The case in point is Texas-based engineering and construction Fluor (FLR ), write analysts Michael Dudas and Patrick Uotila of Sterne Agee. Fluor has a decades-long association with Empresas ICA (ICA and ICA.Mexico ), one of Mexico’s largest construction firms. Meanwhile, the state energy company Pemex is expected to seek bids on and off-shore projects, and form joint ventures, with public and private companies. A handful of projects in the works  including new pipelines, pump houses, storage facilities and refinery upgrades are designed to boost Mexicos oil production. Dudas and Uotila write:

We see opportunity for grassroots LNG [liquefied natural gas], refining, and petrochemical projects providing opportunities for E&C firms Fluor won a $650 million award to construct a delayed coker unit in Mexico through a joint venture with Empresas Expected booking during 4Q 2014. Total contract value of $1.3 billion involves engineering, procurement and construction services for the 86,000 barrels-per day plant for Pemex (private). Completion of the project remains expected for 2018. The project remains set to increase production of higher value distillates.

Sterne Agee has a Buy rating on Fluor, and sees significant upside to its $105 price target. Fluor shares are down 1.5% this morning to $61.99. Empresas shares are up 3% today. The iShares MSCI Mexico ETF  (EWW ) is down 0.3% today, while the iShares MSCI Emerging Markets ETF  (EEM ) is up 0.4%.