Petrobras

Operation Car Wash

So as to keep moving forward, we are sparing no efforts to clarify the facts and overcome our hurdles through work and results.

Given the recent challenges related to our management, we have switched on our control mechanisms, enhanced our standards, and effectively collaborated on the work done by public authorities, who see our company as a victim. We have been facing these challenges with the same drive that has led us to hit important milestones in our operating performance.

The practice of alleged wrongdoing against Petrobras is currently under investigation. The investigations are being carried out by the Brazilian Federal Police and Department of Justice within the scope of Operation Car Wash. The operation is far-reaching and involves investigations into several crimes committed by individuals in different parts of the country and economic sectors.

Throughout 2014, the Federal Department of Justice focused part of its investigations on wrongdoings involving suppliers and construction companies responsible for providing goods and services to Petrobras and ended up revealing there was an unlawful payment scheme involving these companies.

Said unlawful payment scheme involved a large number of suppliers and construction companies that used funds they received under goods and services supply contracts with Petrobras to make unlawful payments to political parties, political agents, former Petrobras directors, and other people involved in the scheme, thereby bribing them so they would not only fail to take steps against the criminal organization’s operation but indeed do certain things to the benefit of those suppliers and construction companies.

As an outcome of the aforementioned Operation, a former Petrobras director was convicted by a trial court on April 22 for money laundering and criminal organization. Another two Petrobras former directors and one executive manager have been indicted for these same crimes, in addition to passive bribery. Executives from companies supplying goods and services to Petrobras have also been jailed as a result of the investigation.

We are co-plaintiffs in the administrative improbity suits filed by the Federal Prosecutor’s Office and by the Federal Government, and in all actions we have filed so far we have asked for the defendants to be convicted and ordered to pay compensation for the non-pecuniary losses caused to Petrobras.

Below are the steps we have taken in view of these facts:

Increased strictness in hiring: We have made the supplier management process stricter to increase security in the procurement of goods and services and to mitigate risks of corruption. Now, in order to join the register, companies have to provide detailed information on their structure, finances, and on their mechanisms designed for compliance and combating fraud and corruption. Additionally, they are also evaluated through a process known as Integrity Due Diligence.

Legal Measures for Reimbursement: We are working on the legal measures appropriate for the reimbursement of loss caused to the company, including to its image. Through November 2016, we had recovered R$661 million through plea-bargaining and lenience agreements signed by the Federal Prosecutor’s Office, and we will continue pursuing the full reimbursement of the amount through the several appropriate reimbursement measures.

Co-complainants with the Department of Justice: in May 2015, we became co-complainants with the Federal Department of Justice in wrongful conduct actions against the construction companies and executives named by Operation Car Wash as responsible for wrongdoings. The actions are part of a set of steps being taken to ensure the losses sustained by our company are fully redressed, including those related to our reputation.

Independent Special Committee: In December 2014, we constituted an Independent Special Committee that operates as a reporting line for the independent internal investigations carried out by the law firms. The new director for Governance, Risk, and Compliance, João Adalberto Elek Júnior, is one of the members of the Committee, together with retired Supreme Court minister, Dr. Ellen Gracie Northfleet, and Dr. Andreas Pohlmann, Siemens AG’s Chief Compliance Officer from 2007 to 2010.

Independent Internal Investigation Firms: In October 2014, we hired two independent law firms specializing in investigations, one Brazilian (Trench, Rossi e Watanabe Advogados) and another from the US (Gibson, Dunn & Crutcher LLP), to carry out an independent internal investigation.

Disciplinary measures: We have investigated and punished internal misconduct. We apply disciplinary measures to employees at various hierarchical levels for misconduct and harassment, damage to property, fraud, theft, negligence, and misuse of company resources, resulting in employment contract termination, suspensions, and written warnings.

New Denunciation Channel: We have put in place a new Information Channel, which is independent, confidential, and impartial, available to our external and internal audiences. A specialized independent company is in charge of receiving complaints. The Channel works 24 hours per day to receive, whether via the website or by phone, allegations of fraud, corruption, and money laundering, as well as of harassment, discrimination, or any other irregularity.

Independent Special Committee: In December 2014, we constituted an Independent Special Committee that operates as a reporting line for the independent internal investigations carried out by the law firms. The new director for Governance, Risk, and Compliance, João Adalberto Elek Júnior, is one of the members of the Committee, together with retired Supreme Court minister, Dr. Ellen Gracie Northfleet, and Dr. Andreas Pohlmann, Siemens AG’s Chief Compliance Officer from 2007 to 2010.

Precautionary Company Shutout: since December 2014, we have been setting up Sanction Imposition Analysis Committees (Comissões para Análise de Aplicação de Sanção - CAASE) and as a precaution shutting out companies belonging to economic groups named as cartel members in the depositions to the authorities. As a precaution, these companies are barred from taking part in our RFPs and contracting with Petrobras. The decision to shut them out as a precaution does not stop or terminated the contracts in effect, nor does it stay payments owed for services rendered.

Collaboration with the investigations: we have effectually collaborated on the work done bypublic authorities, as acknowledged by the courts and the Federal Department of Justice. We have systematically fulfilled the requests by external control agencies (Tribunal de Contas da União – TCU/the Federal Accounting Court, , Ministry of Transparency, Inspection, and Controllership General of the Union - CGU and the Department of Justice), and will we remain committed to helping with their investigations and audits. In several criminal cases, we have assisted the prosecution along with the Federal Department of Justice. By so doing, we are able to attend hearings, ask questions to the defendants and witnesses, file petitions, appeal, and more.

Training: In August 2015, members of the Board of Directors and of the Executive Board of Petrobras and Petrobras Distribuidora underwent training. In November, executive managers and subsidiary presidents also attended training. In 2015, an audience of over 3000 people was reached through lectures or on-site courses. By 2016, the goal is to train 100 percent of the employees through various means, including e-learning. The Brazilian Anti-Corruption Act, the American Anti-Corruption Act (FCPA - Foreign Corrupt Practices Act), the company's Code of Ethics and Conduct Guide are a few of the topics addressed in training.

Focus on financial management

Financial management is an important focus of our current efforts. Our financial plans include cutting back on investments, increasing divestitures, and studying other funding and cash flow increase possibilities.

We would also like to point out that we have been dutifully performing all of our contractual duties and paying our recognized liabilities to all companies according to the legislation in force and contractual provisions.

Below, we describe our efforts to transparently and swiftly disclose our financial information and guarantee our cash is preserved:

Business and Management Plan: our Business and Management Plan for period of 2017-2021 foresees investments of $74.1 billion. Our investment portfolio prioritizes oil drilling and production (D&P) projects in Brazil, especially in deep waters. Our plan’s core goals are to reduce are indebtedness and generate value for our stockholders. Learn more

Divestitures: the divestiture amount foreseen for the period ranging from 2017 and 2018 is $19.5 billion. The revision is meant to reduce indebtedness, preserve the cash, and focus on priority investments, namely the production of oil and gas in Brazil in highly productive, high return-yielding areas.

Sales of a few assets already announced:

  • 66 percent of the stakes in exploratory block BM-S-8, where the area of Caracará is located in the pre-salt Santos Basin, to the Norwegian state-owned oil company Statoil, for $2.5 billion;
  • Sale and Purchase Agreement (SPA) for 100 percent of Petrobras Chile Distribuición Ltda (PCD), owned by Petrobras Caribe Ltda. with the Southern Cross Group. The estimated cash inflow is in the order of $490 million;
  • We have completed the sale of our entire 67.19 percent interest in Petrobras Argentina (PESA), owned via Petrobras Participaciones S.L. (PPSL) to Pampa Energía, upon payment of $897 million;
  • 49 percent of the stakes in Petrobras Gás S.A. (Gaspetro) to Mitsui Gás e Energia do Brasil Ltda. (Mitsui-Gas), with the payment of R$1.93 billion;

Funding: In February and May we signed Term Sheets for funding worth $11 billion with the China Development Bank (CDB).

In 2015, we also approved:

  • Fund raising worth $2.5 billion in bonds maturing in 100 years, marking Petrobras' return to the international capitals market;
  • Fund raising from the CBD in the order of $5 billion. This funding is part of the cooperation agreement signed with the CDB for the years 2015 and 2016.
  • Banco do Brasil loan in the amount of BRL 4.5 billion as export credit notes through our subsidiary Petrobras Distribuidora for six years;
  • Pre-approved (standby) loan limit at Caixa Econômica Federal in the amount of BRL 2 billion and for up to five years;
  • Pre-approved (standby) loan limit at Bradesco in the amount of BRL 3 billion and for up to five years;
  • Cooperation Agreement with the Standard Chartered bank on an oil rig sale and leaseback operation in an amount up to USD 3 billion and for 10 years.

Putting together a new management model

We have been putting together a new management model focused on improving our financial management and decision-making model, investing in the synergy between our executive offices, and making our processes both faster and increasingly safer.

We are implementing the new organizational structure and the new management and governance model at the company. The reformulation was carried out as part of our response to the new reality in the oil and gas industry, which has led us to prioritize more profitable activities, making us more competitive. In addition to enhancing our control and compliance mechanisms, the new structure provides for the redistribution and centralization of activities, area mergers, and for the revision of the decision-making model. One of the first outcomes of the restructuring process was the 43 percent reduction in our management positions. With this set of changes, we expect to attain cost reductions worth up to R$1.8 billion per year.

Our transparency and control mechanisms undergo ongoing improvements

Our control and management bodies have worked to ensure process compliance and improve our monitoring and control mechanisms. Our dialogue channels and management bodies are ready to receive and handle the cases referred to them.

Transparency and dialogue channels:
  • General Ombudsman’s Office:

    Our General Ombudsman’s Office is the direct channel of communication between our stakeholders and top management, and handles opinions, suggestions, requests, compliments, complaints, information requests, queries, and incident reports. These cases brought by all of our stakeholders are handled confidentially, independently, accessibly, and without bias.

    Denunciation Channel:

    Independent, confidential and impartial, available for sending reports on irregularities and on accounting, financial, audit, and internal control fraud, anonymously.

  • Transparency Portal and SIC:

    To ensure compliance with the Freedom of Information Law, we have a department that handles requests forwarded to the Citizen Information Service (Serviço de Informação ao Cidadão - SIC), whose average response time is nine days. This department is also in charge of our Transparency Portal, which posts a host of information about Petrobras, notably the Chairman’s and chief officers’ public commitment schedule, RFPs, and agreements and contracts signed by our company.

  • Access to information

    Over the three years since the Freedom of Information Law (Lei de Acesso à Informação - LAI) was enacted until May this year, we granted 90% (14,742) of the requests, all the while shortening our response time and improving our Transparency Portal. The residual percentage of access denials corresponds to strategic information. The denials were issued based on grounds provided for by LAI, such as personal information, business secrets, professional confidentiality, and other cases. The second entity among the entire Federal Public Administration to receive the most requests, we had 16,400 information requests filed with our Freedom of Information Service (SIC – Petrobras). In 2015, we have already topped the number of 2,750 requests filed.

Internal and external control mechanisms:
Internal audit

This independent division in our Company is tasked with controlling and ensuring the compliance of procurement processes.

Executive Management for Compliance

Its mission is to plan, guide, coordinate and assess control, compliance and investigation activities, to mitigate risks of fraud, corruption and money laundering, as well as counsel managers at every level, to ensure the strengthening of internal controls, the mitigation of risk and an upright environment for conducting business in the Petrobras System.

Internal investigation committees

Set up in the event evidence of malfeasance is found in the Company’s contracts.

Oversight by public bodies

We are overseen by several public bodies, such as the Federal Inspector General Office, the Federal Accounting Court, the Federal Department of Justice, the Brazilian Securities and Exchange Commission, and regulatory agencies.

Documents that set parameters for our relationship with our stakeholders:

Code of Ethics

Code of Ethics:
defines the Petrobras System’s ethical principles and conduct commitments related to our relationship with our stakeholders.

Code of Conduct

Code of Conduct:
describes the ethical conducts that must be followed by members of the Board of Directors, Audit Committee, Executive Board, holders of management positions, employees, and interns. We have included compliance with our Code of Conduct to our revised Procurement Handbook, i.e. the document that sets the guidelines we and our suppliers must follow when signing contracts.

Petrobras Corruption Prevention Program

Petrobras Corruption Prevention Program:
the document describes the main concepts and steps adopted by the Program and reaffirms our commitment to ethics, transparency, and zero tolerance of fraud and bribery in our activities and business.