Petrobras Said to Seek SEC Help in Breaking Accounting Deadlock

Petrobras Said to Seek SEC Help in Breaking Accounting Deadlock

By Peter Millard Sabrina Valle

12:22 PM BRST  February 13, 2015


(Bloomberg) — After months of soul searching over how to book corruption costs, Petroleo Brasileiro SA is turning to the U.S. for a solution, said two people familiar with the matter.

Petrobras plans to send a team of executives, accompanied by representatives of auditor PricewaterhouseCoopers LLP, to seek advice from the U.S. Securities and Exchange Commission on methodologies for recognizing graft losses, one of the people said. PwC wants a nod from the SEC before approving earnings of a company whose securities trade in the U.S., the two people said, asking not to be identified as the matter is private.

The debate over writedowns is set to move to New York as Brazil’s state-controlled oil producer battles to report audited results before triggering an acceleration of debt payments at the end of May. In the alleged scheme, contractors colluded to inflate bids, with Petrobras executives taking bribes and politicians sharing in the proceeds.

The press departments of Petrobras and the SEC didn’t respond to e-mails seeking comment. PwC referred questions to Petrobras in an e-mailed response.

Days before announcing her resignation as chief executive officer on Feb. 4, Maria das Gracas Foster said Petrobras estimated at least 4.1 billion reais ($1.4 billion) in direct graft losses based on testimonies from former executives. The board also opted against using a fair-value methodology that indicated a total potential writedown of 89 billion reais including non-graft items.

Disputed Figures

Foster’s replacement Aldemir Bendine has disputed those figures and said the company will work with auditors on a daily basis to solve the matter as fast as possible. New Chief Financial Officer Ivan Monteiro is leading the efforts to get results approved as his top priority, one of the people said.

Last year PwC demanded Petrobras hire law firms to calculate graft costs before it would sign off on the results.

New management wants to reach an agreement with regulators in the U.S. and Brazil on the best methodology to calculate impairments as it spends as long as two months running the numbers, one of the people said.

The biggest producer in deep waters is all but shut out of debt markets until it releases results. The accounting crisis comes as oil prices are near six-year lows and has prompted cuts to one of the biggest spending programs in the industry.

Bendine is pursuing a methodology based on impairment tests, one of the people said. Given the difficulty in isolating corruption costs, Petrobras is trying a system that includes other variables such as currency variations, but with a more favorable discount rate that would reduce the final number, the person said.

The company hasn’t received any assurance from the U.S. regulator that it will assist in deciding on the best methodology, one of the people said.

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