Petrobras / Clarification on News: Pasadena

Petrobras

Clarification on News: Pasadena

Rio de Janeiro, April 2, 2015 – Petróleo Brasileiro S.A. – Petrobras complies with OFFICIAL LETTER/CVM/SEP/GEA-1/No. 109/2015, which requests the following clarification:

OFFICIAL LETTER/CVM/SEP/GEA-1/No. 109/2015

“In reference to news released on April 1, 2015 in the newspaper Valor Econômico entitled “Petrobras refused Pasadena for US$ 40 million” containing the following statements:

“The class action lawsuit brought against Petrobras by U.S. law firm Pomerantz, the largest to date, cites a “confidential informant” who has shared important information regarding the case. Specifically, a Petrobras employee who worked in Houston stated that the Brazilian state enterprise had the opportunity to purchase 100% of the Pasadena refinery for US$ 30 million to US$ 40 million before Astra bought it for US$ 42.5 million in 2005.

According to the lawyers, this “informant” said that in 2004 he found out from a former El Paso manager that Crown was offering the Pasadena refinery to the market. He e-mailed Petrobras regarding the matter and no one replied. In an unclear passage of the document, the “informant” said that a Petrobras executive from the United Kingdom had told him he was going to get a telephone call from an investment bank to offer a refinery in the United States. Also in 2004, he received a written proposal offering Petrobras the refinery for US$ 60 million to US$ 80 million. Another e-mail was allegedly sent to Petrobras in Rio, states the lawsuit, at which time a “very high ranking executive” [of the state enterprise] replied (via e-mail) stating that the purchase of the refinery is not part of the company’s strategic planning.”

At this time, the lawyers state that another offer was made in 2005 after Astra had acquired the refinery. Thinking it was a “lawful, profitable and a good business” proposal for Petrobras, the proposal was allegedly sent to his supervisors in Brazil, who then forwarded it to Nestor Cerveró, former international director and currently incarcerated in Paraná.

“The informant was later told by the executive who made the proposal that a high ranking Petrobras executive told him/her to forget about any plans or transactions involving Crown because the company’s outlook had changed”. And that a senior Petrobras director told the informant that his/her supervisor had said “not to discuss this matter any further with you”.

In 2006, Petrobras bought a 50% interest in Pasadena Refining System Inc. (PRSI) from Astra for US$ 360 million. An additional payment of US$ 820.5 million was made in 2012 for the remaining 50%. At this point, the informant had lost his job in Houston because, according to allegations, he lacked a political godfather.

When asked, Petrobras refused to comment. The state enterprise spent more than US$ 2 billion on the refinery in Texas, as announced by former CEO Graça Foster in a Senate hearing. In the same hearing, Graça Foster confirmed that nearly US$ 2 billion were spent on acquisition and investments for the refinery, as forecast by Valor PRO, a real time information service provided by Valor, in April 2014. According to the state enterprise, the final amount was not US$ 1.249 billion after including interest, loans, guarantees and legal costs. Another US$ 685 million were later spent.

Despite attempts to conceal the identity of the informant, the lawyers have signaled that the informant is an executive who worked in Houston in 2002 as head of Gasoline Negotiations for Petrobras America, and was promoted to commercial manager in 2003. This informant held various positions at the Petrobras headquarters between 2010 and 214 without promotions.

The consolidated text of the class action lawsuit filed by Pomerantz cites as defendants the state enterprise’s former CEOs Graça Foster and José Sérgio Gabrielli, as well as other executives of the company’s subsidiaries abroad, in addition to the consultancy PricewaterhouseCoopers (PwC). Of all the lawsuits that have been filed in US courts against Petrobras this is the most important one since it was lodged on behalf of all the investors who bought Petrobras’s shares traded in New York (ADRs) between January 22, 2010 and March 19 of this year, as well as individuals who bought bonds issued by Petrobras International Finance Company (PifCo) and Petrobras Global Finance B.V (PGF) during this period.

The lawsuit demands that Petrobras and the other defendants pay damages to the leading investor of the action (British pension fund Universities Superannuation Scheme – USS) and to the other investors who fall within the period of the lawsuit. The next step is a hearing between the parties and Judge Jed Saul Rakoff scheduled for May 29.

The defendants of the lawsuit are Petrobras, the financial subsidiaries Pifco and PGF, and a number of executives. Besides the two cited above, and Almir Barbassa, former chief financial officer; former director Josué Christiano Gomes da Silva; and Silvio Sinedino Pinheiro, who represents the employees in the Board of Directors.

Fifteen financial institutions that acted as stock subscribers for Petrobras in the United States are also defendants, including Brazil’s BB Securities, a subsidiary of Banco do Brasil; Itaú BA USA Securities; Banco Votorantim and Banco Bradesco BBI; as well as others. PwC is a defendant because it had access to Petrobras’s records and documents during the period of the lawsuit, due to the services it provides since 2012.

According to the lawsuit, the audit firm was wrong to approve the company’s results in 2012 and 2013 without exceptions, since the balance sheets did not comply with international accounting rules (IFRS). The lawsuit also highlights that PwC profited from the services it provided. In 2012, it received US$ 7.7 million. In 2013, it received an additional US$ 8.6 million. According to Pomerantz, even if the audit firm asserts that it conducted its work according to United States accounting standards, “PwC turned a blind eye” to the corruption scheme within the company by failing to follow established rules.

The text of the lawsuit also claims that the audit firm ignored obvious red flags, such as signs that the construction projects at the Abreu e Lima refinery (Rnest) were going to cost considerably more than the initial cost estimate. The purchase of the refinery in Pasadena, United States, is also cited as a red flag, as well as the fact that the company’s investment plans in 2012 and 2013 represented approximately four times the net income for those years. PwC also failed to detect misconduct within the company, such as the acceptance of bribes.”

We request Petrobras’s clarification regarding the statements contained in the article.

Clarification

Petrobras and its U.S. lawyers are analyzing the allegations presented by the lead plaintiff in the Class Action filed in the New York Federal Court and the Company will defend itself against this Action.

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