The Brazilian state-run energy company Petróleo Brasileiro, or Petrobras (NYSE:PBR), is looking to cut labor costs as its spending on developing oil fields accelerates. Despite the relatively high oil prices of 2013, many oil companies are struggling to keep profits and revenue healthy in the face of crippling costs. Royal Dutch Shell (NYSE:RDSA)(NYSE:RDSB) — which issued a profit warning to investors on Friday — may be the most prominent example of the headwinds tugging at oil companies, but many other industry players, from BP (NYSE:BP) to Petrobras, are looking to lower costs.
On Thursday, the executive board of directors of Petrobras — a company employing 62,770 workers — approved a voluntary separation incentive plan that covers all employees over the age of 55. As the company expressly stated in the press release detailing the worker buyout, the proposal was developed as part of an initiative to “positively influence Petrobras’ productivity” so that key performance targets can be met. The voluntary separation incentive plan is meant to be a road-map to “plan and systemize the separation” of particular employees so that the “existing knowledge of the company” is preserved, knowledge that will enable the oil producer to focus on boosting productivity.
Petrobras did not specify how many workers would be targeted, but the National Oil Workers Federation told The Wall Street Journal that the oil producer wanted to cut as many as 8,500 workers from its payroll. With lower labor costs, the company would have the spare financial room to spend a planned $237 billion through 2014 on developing oil fields off the coast of Brazil. Already that development plan has put a great strain on the company’s balance sheet; because the Petrobras has borrowed a great deal to finance the project, the company’s debt has more than quadrupled to $86.5 billion.
While companies like Shell have found themselves in trouble because of undertaking massive capital expenditure projects and investing too much too late in the North American shale boom, analysts have identified a different culprit for Petrobras’s financial difficulties. Critics of the Brazilian government argue that because the state has forced Petrobras to subsidize domestic diesel and gasoline consumption, the company’s balance sheet is unduly burdened. But despite the criticism, the Brazilian government will likely prevent Petrobras from increasing fuel prices in the near future because the country’s inflation is running faster than anticipated. Both President Dilma Rousseff’s economic team and the Brazilian central bank pledge to lower inflation in 2013, but prices rose 5.91 percent last year, a figure that surpassed the target of 4.5 percent and 2012’s year-end rate of 5.84 percent.
Inflation has exacerbated the problems for Petrobras; it has made the Brazilian real weaker against the U.S. dollar. A weaker Brazilian real means imports are more expensive, and, as a result, the company’s expenses are greater. As analysts told the Journal, approximately 60 percent of the oil producer’s costs are linked to the U.S. dollar, including a great deal of its debt, while the majority of its revenues are in Brazilian reals.
While implementing worker buyouts would help Petrobras meet cost-saving targets set out in its investment plan, union officials claim that downsizing its workforce would actually keep Petrobras from further expanding its project portfolio. “The number of workers Petrobras has today already isn’t enough to support the company’s activities,” union director João Antônio de Moraes told the publication. Those workers who will likely qualify for the buyout have been employed by Petrobras long enough to be eligible for a government pensions but they remained with the company, which needs their experience. Plus, Moraes argued that by shrinking payrolls, the company would not only lose the experience needed to develop important oil fields but also see a greater number of safety issues. Union officials have attributed recent industrial accidents at Petrobras refineries to a lack of maintenance and too few qualified workers.
But that argument may not entirely be accurate, according to the Brazilian government. Adriano Pires, the head of local energy consultants CBIE told the publication that the government has used Petrobras as a means to increase employment in Brazil and win favor with the country’s voters. Including contractors and outsourced workers, Petrobras employs 300,000. “The company has become almost unmanageable because of the number of people,” Pires said
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