By Peter Millard
(Bloomberg) — Petroleo Brasileiro SA, the Brazilian state- run oil company grappling with plunging crude prices, a sweeping corruption scandal and the global oil industry’s heaviest debt load, has a new problem on its hands: Unions.
The company’s workers started a strike this week that has already cut daily output and shut 30 offshore platforms. Unlike in previous years when employees demanded raises and a bigger slice of profits, this time they’re fighting for something more elusive: a halt in spending cuts and asset sales that investors say are needed to save the embattled state-run oil company from being overrun by its debt.
The backlash on the ground and the union’s demands underscore just how far the once-mighty Petrobras has fallen. Essentially, oil workers want to turn back the clock to when crude was trading above $100 a barrel and Petrobras was the engine of Brazil’s economic growth — an impossible demand that makes a fast resolution to the labor dispute unlikely, said Adriano Pires, president of CBIE, an energy consultant in Rio de Janeiro.
“The union is ignoring the reality the company is going through,” Pires said. “This is a strike that will carry costs for Petrobras and Brazil.”
Just when investors thought things couldn’t get any worse for Petrobras, the strike that began Nov. 1 threatens to pare monthly production and badly needed cash flow. The company is struggling after the real plunged 30 percent this year, swelling the size of its dollar debt when converted into the local currency.
Chief Executive Officer Aldemir Bendine has said he wants to sell more than $15 billion in assets before the end of next year and slash capital expenditures by more than a third. That threatens to boost unemployment that’s already at a five-and-a- half-year high as Brazil is in the middle of what’s forecast to be its longest recession since the Great Depression.
Petrobras shares have collapsed 19 percent this year as its credit rating was cut by Standard & Poor’s in September, making the company the world’s biggest junk-rated borrower.
While Petrobras said in a statement that daily output was cut 13 percent on Monday, and then 6.5 percent on Wednesday, the oil-workers union known as FUP said the company is underestimating the impact of the strike. Thirty platform stoppages in the Campos Basin alone have curbed output by 25 percent, the union said Thursday. The worst strike in recent decades was a monthlong stoppage in 1995, when workers fought the opening of the oil industry to competition.
“The workers’ resistance to asset sales to resolve Petrobras’s financial problems is an even more difficult issue for management to resolve” than wage demands, Bank of America analysts Frank McGann and Vicente Falanga Neto said in a note to clients Tuesday. “There is no way for Petrobras to reduce this debt level to acceptable levels over a reasonable period without very significant asset sales, absent a very sharp rise in oil prices for an extended period of time.”
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