Three Petrobras Board Members Criticize 2014 Earnings Calculations

Three Petrobras Board Members Criticize 2014 Earnings Calculations

Last week’s earnings report included write-downs related to a massive graft scandal at the oil company

By PAUL KIERNAN/WSJ

April 28, 2015 5:09 p.m. ET

RIO DE JANEIRO—Three independent members of the board of directors of Brazil’s state-run Petróleo Brasileiro SA strongly criticized the company’s calculations of its 2014 financial results before the firm’s earnings were released last week, according to documents made public Tuesday.

Among their complaints: board members were given less than less than two hours to review 319 pages of documents before voting to determine if 50.8 billion reais ($17 billion) in write-downs and impairments were sufficient to account for the effect of a massive graft scandal at the oil company.

“This effort…fell short of what full due diligence would require on my part, especially given the need for recovering the company’s credibility,” said José Guimarães Monforte, who was elected to represent holders of Petrobras’ nonvoting shares. Mr. Monforteabstained from voting because he said he didn’t have enough time to make an informed decision.

The remarks by Mr. Monforte and other Petrobras board members were part of April 22 board minutes released Tuesday by Brazil’s securities regulator. The 10-member board voted 7-2 with one abstention to approve the statements; all affirmative votes came from board members selected by the government.

The complaints of the three independent board members contrast sharply with upbeat statements by company management that Petrobras has put the scandal behind it. Their remarks could also raise questions about auditor PricewaterhouseCoopers’ decision to endorse Petrobras’ 2014 financials without reservations.

Petrobras shares were up 1.43% at 12.76 reais in late afternoon trading in São Paulo on Tuesday. The company didn’t respond to a request for comment.

Petrobras’ earnings were delayed for months due to uncertainty about the financial impact of a sprawling corruption investigation that has roiled the company since last year. The 2014 financial statements included 44.6 billion reais of impairment charges on assets including refineries as well as another 6.2 billion reais write-down related to alleged corruption.

All three independent board members are set to be replaced this week, for various reasons. Mr. Monforte resigned unexpectedly last week after the financial statements were issued. Mauro Rodrigues da Cunha, elected by minority holders of Petrobras’ voting shares, decided in March not to run for re-election due to frustration with the government’s role in the company. Silvio Sinedino, elected by Petrobras’ workers, was voted out of his position earlier this year.

The meeting minutes provided a glimpse into their exasperation.

Like Mr. Monforte, Mr. Cunha criticized the lack of time to review documents. He also blasted Petrobras’ methodology in calculating the asset impairment, saying it only partially reduced the massive overvaluation of refineries on Petrobras’ books. He voted against releasing the earnings.

Mr. Cunha also complained that documents provided by Petrobras to the U.S. Securities and Exchange Commission were withheld from the board for reasons of “’confidentiality’–against which I, as a board member, vehemently protest.”

Mr. Sinedino, another “no” vote, also cited Petrobras’ methodology for calculating the asset impairment as a reason for voting against the release. He noted that part of the troubled Abreu e Lima refinery wasn’t included in the impairment even though it cost the company $81,000 per barrel of capacity to build, compared with a “maximum international average” of $35,000.

Write to Paul Kiernan at paul.kiernan@wsj.com