Adrift

Translated by Flora Thomson-Deveaux

 versão em português

The first meeting on Friday, September 11^th, at the office of the Minister of Mines and Energy, was a quick one. At 9:00 Eduardo Braga met with Murilo Ferreira, the chair of the board of directors at Petrobras, and was informed that Ferreira was asking to take a leave of absence. In the conversation, the executive referred to “personal reasons.” Braga knew that this separation would mark the end of a difficult period between Ferreira and the president of Petrobras, Aldemir Bendine, but didn’t pry. Nor did Ferreira, with the soft speech and discretion typical of the native sons of Minas Gerais, comment on the issue. Minister and executive had always maintained a formal relationship, despite Ferreira’s also serving as president of Vale (a private mining company in which the government has invested via the national development bank, BNDES, and state pension funds), a strategic post in Braga’s territory. Murilo Ferreira only went into more detail about his decision at his next engagement, a meeting with the chief of staff to President Dilma Rousseff, Giles Azevedo. He felt that he owed an explanation to the president, who had not only vouched for him when he was nominated to head up Vale, but had also tried to make him a minister, president of Petrobras itself, and at a third invitation, finally convinced him to take on the leadership of its board. In the conversation with the president’s aide, Ferreira repeated the diagnosis that he had already been sharing behind the scenes with close interlocutors: “Bendine doesn’t understand the size of the challenge.”

Before that Friday, tension amongst the higher-ups in Petrobras had been a topic limited to those closely collaborating with members of the board and directors. From that Monday onward, it became public. In newspapers and on news sites, speculations proliferated as to the reasons for Ferreira’s exit: “divergences,” “lack of transparency,” and even “sabotage” of the board by the company’s executives. In an attempt to hush the clamor, Bendine and Eduardo Braga gave interviews attributing the temporary leave to Ferreira’s health problems. Days later, accompanied by his wife and daughter, the leave-taker could be found at Rock in Rio until four in the morning. He saw the show by the band The Script, one of his favorites, and only left after checking out the performance by vocalist Adam Lambert, filling in for the legendary Freddie Mercury in the new Queen lineup. He seemed to be in great shape. The same couldn’t be said of the company he had just left – never to return.

The conference room of the Petrobras board of directors, on the 24^th floor of company headquarters in downtown Rio de Janeiro, is large and airy. There, every month, the most powerful organ in the administration of the state-owned company lays out the strategy to be followed by directors and managers on a day-to-day basis. Two sweeping windows open up onto Guanabara Bay and the Lapa Arches, framed by the tropical plants in the building’s glassed-in gardens. There’s ample space for the big-screen TV, the long wooden table ringed by board members and alternates, and even chairs for the advisers who take turns presenting information to top management during monthly meetings. Coffee, water, and lunch are served right there so that those present can withstand the nearly ten hours of discussion with some degree of comfort. Even so, lately air has seemed in short supply on more than one occasion. The first great schism after the Petrolão scandal, [1] in late March, came with the collective resignation of the president, Maria das Graças Foster, and five of the company’s six directors, in protest against pressure from the federal government to attenuate corruption-related losses on the company’s balance sheet. To substitute Graça Foster, President Rousseff reached out to a number of executives at private companies, who rejected the offer. She wound up bringing Aldemir Bendine (“Dida”) from the state-run Banco do Brasil. The choice was taken poorly by the market and the press, who expected someone outside the administration. Many analysts called the pick “more of the same,” since Bendine was close to former minister Guido Mantega, chair of the Petrobras board of directors until then.

The new CEO’s first challenge was to draw up financial statements estimating losses from corruption in a way that would seem credible to investors and auditors. This stage came to a close in April along with the naming of the new board. Contrary to expectations, however, it failed to bring peace. When it came time to decide the way forward for Petrobras, a new split emerged. On one side, Bendine. On the other, the group brought in by Ferreira: Clóvis Torres, legal director at the mining company, and its former director of investor relations, Roberto Castello Branco. Bendine nicknamed them “the Vale gang.”

The first divergences arose around a crucial topic for the company: Petrobras’ policy on fuel prices. Since June, Castello Branco had been asking management for a detailed explanation on this score. He wasn’t familiar with the oil industry. But he knew that the company had already lost billions by selling gas and diesel at prices below international market levels from late 2010 to the end of 2013 – an attempt by the government to control inflation. Castello Branco had heard from employees that this had led to as much as R$40 billion in losses. Elsewhere, some spoke in terms of R$120 billion.

Castello Branco and his colleagues considered proposing a system of periodic readjustments in order to cover the losses. Before then, however, they needed to establish the official numbers. In June, Bendine had asked to table the issue until the next month, since the directors were busy with the company’s business plan. July came, but the explanation from Supply Director Jorge Celestino Ramos did not include the graphs and formulas Castello Branco had hoped for. That was when he complained. He said he was disappointed, and asked for this to be registered in the minutes. A new presentation was made in August, but as of now the board still has not seen the formula used by the company to determine fuel prices.

This incident would foreshadow a series of clashes between Bendine and “the Vale gang.” Of the ten board members and nine alternates, three were from Vale and four from the government, including Bendine and BNDES president Luciano Coutinho. One spot is reserved for company employees. The other eleven come from the financial market, academia, or private consulting firms. This more professional bent is a new development, born of the trauma of the Petrolão. The scandal threw a spotlight on the way decisions were made in the body that steers management at Petrobras.

Since the President Fernando Henrique Cardoso’s administration altered the makeup of the board – substituting its previous incarnation, which only included company directors – the group had mainly comprised ministers and assistants working directly with the president of the republic. “On paper, there were rules saying that the company had to be run in a professional way, but they weren’t followed. In practice, the government always did what it wanted,” recalls Mauro Cunha, who served from 2013 to 2015 after a battle waged by minority shareholders to nominate independent board members.

The presidential palace’s power over Petrobras became a millstone when it came to light that President Rousseff herself had voted for the purchase of the Pasadena refinery in Texas at an inflated price tag, back when she was Chief of Staff and oversaw the board. In her defense, the president declared that she had only approved the buy under the influence of a “technically and legally flawed” report from the former International Director at the company, Nestor Cerveró, currently imprisoned in Curitiba. The episode set off a number of changes in the company’s contracting rules.

In the post-Petrolão era, all of Petrobras’ purchases or expenses must be approved by at least two employees. “Today nobody in this company buys a pencil on their own,” João Elek, director of governance, risk management, and compliance, told me in late September. Elek’s job was created in the wake of the scandal. He said that spending limits were imposed that vary in accordance with the area and type of contract. Above the limit, everything goes through the board – which now takes it upon itself to put every new expense under a microscope. Board meetings, which used to take around two hours, now begin in the morning and drag on through the evening.

In September and October I spoke with six members of the board, as well as Petrobras executives, commercial partners, and financial advisers (Aldemir Bendine did not respond to interview requests). According to these people, divergences cropped up in every meeting, but Bendine and Ferreira treated one other politely. That was why several board members said they’d been surprised by Ferreira’s announcement of his withdrawal. “It hadn’t seemed that they were so close to a break,” commented one of them at the end of October.

In fact, the mood worsened gradually, with the accumulation of small incidents that fostered distrust on both sides. One such episode was Bendine’s hesitation at following through on his promise to recommend two of the company’s professionals for the board of directors of Transpetro, a logistics-focused subsidiary of Petrobras. This was interpreted as an attempt to avoid stepping on the toes of Senator Renan Calheiros, who wields considerable influence over the company. The “Vale gang” was furious.

Things boiled over in the August meeting, with sparks flying in all directions. When informed that 39,000 employees had received automatic promotions, the result of a deal with the union, Ferreira questioned Bendine’s judgment: giving out raises in the middle of a crisis didn’t send a good message. The CEO argued that the adjustment was part of an old agreement that he had no way to get out of. Moreover, as he explained, the extra R$450 million had already been neutralized by cuts in other areas. Ferreira fell silent, but displayed his irritation in private conversations. He said that the crisis at Petrobras was too serious for Bendine to complacently swap one expense for another. “It was as if he were giving aspirin to a patient in the ER,” commented one board member weeks later.

On that same afternoon in August, another topic set Bendine against the Vale gang: the proposal to name around 40 third- and fourth-level executives as statutory directors, making them criminally responsible for possible misdeeds. This, Bendine’s idea, was well received by some and seemed as if it would take off. But Ferreira’s alternate, Clóvis Torres, came in hitting hard: “Do you mean you’re delegating the responsibility for making decisions in this company to 40 people? Are you saying that you’re incapable of leading them? Wouldn’t it be better to make all 80,000 Petrobras employees into statutory directors?” Bendine’s reaction was the same as the other occasions on which he had been confronted: he absorbed the blow and responded calmly. “By no means. I deal with any number of people, and some of them don’t realize how much responsibility they have.”

Night had fallen by the time the last agenda item came up: the sale of a minority interest in BR Distribuidora. Dubbed “Project Barbacena,” this operation was part of Petrobras’ plan to ease its balance-books. BR is the largest fuel distributor in Brazil, but its profit margins are slimmer than its competitors’. Operation Carwash [2] had showed that the company had also taken a hit from the embezzling of the Petrolão. The federal prosecutor’s office claims that former president Fernando Collor de Mello alone received R$26 million in bribes on deals struck by the distributor between 2010 and 2014. Some board members argued for out-and-out privatization, feeling that it would be extremely difficult to find investors interested in being minority shareholders amidst a crisis of this magnitude. Most, however, agreed that selling a slice of BR to the private sector would not only help Petrobras raise funds, but might also serve as a good pretext to professionalize management.

Ferreira thought differently. As he saw it, BR needed to professionalize and improve its performance before going onto the market. Nevertheless, he waited until there were already eight votes in favor before speaking up. And even once the issue had been decided, he insisted on giving a lengthy explanation of his vote, as included in the public minutes. “That was strange. If he’d voted first, several others would have gone with him,” said one of those present at the meeting. When Ferreira tendered his resignation to the board, the episode would be brought up by his colleagues as a sign that he was already looking for a way out.

In late August, days after the debate over BR, O Estado de S. Paulo published the news that Petrobras’ leadership had considered backtracking on the sale of shares in the distributor. The news came as a surprise to the board, which would have to deliberate on such decisions. And it sparked the first of two heated email exchanges – referred to amongst the board members referred as “Friday Night Messages,” since they came at the end of the day on Fridays.

When questioned in private messages by fellow board members about the piece in the Estadão, Murilo Ferreira responded, copying Bendine: “Dear all. I was not informed by phone, email, or in person. Completely disregarded.” The CEO’s response came at 8:26 p.m. on the last Friday in August. It was a long message in which Bendine said that nothing had been decided and complained of board members’ fixation on “gossip in the press.” At the end, there came a threat: “I have fought long and hard to have an independent, active board, but based on the assumption of a relationship of trust in our executives on the part of the board of directors. Should that not be the case (as evident in the messages below), I am willing to seek out better alternatives for Petrobras.” Ferreira didn’t respond. In the days that followed, Project Barbacena would come apart at the seams.

Shortly thereafter, in the first days of September, there came more friction. In a new email exchange, members of the financial committee criticized the directors over recent losses in fuel sales. The emails got around to Bendine. He forwarded them to Ferreira, venting as he did: “An unnecessary comment. This reflects the board’s boxing our ears without showing the slightest solidarity. Is this how we are to be run?” And then: “Price policy is extremely well administered. These unprepared alternates have been slowing the company down. And I will no longer accept this sort of behavior.”

One week later, Ferreira decided to step aside. Amidst all the speculation, some attributed his exit to his (real) irritation over benefits such as the “pharmacy card” – a subsidy for medications given to the company’s 80,000 employees. At the highest echelon, however, nobody buys that version. The general impression can be summed up in this comment from a board member: “Murilo saw that he’d be dragged down into the crisis, and he wanted to keep that from staining his image as an executive.”

Stock market commentator Jim Cramer is one of the most famous and controversial of his kind on American television. Bald, with a stocky build, he provides analysis on market performance on CNBC, which specializes in economic and business news. His expressive face highlights the histrionic delivery of his tips. Yelling, dancing, and punching the air, turning to slang and curse words to prove that a given company is a “gold mine” or “crap,” the former hedge fund manager has become a celebrity among investors, who call in to ask for his advice. Despite some historic missteps – in 2008, he recommended that a viewer hold on to a stake in Bear Sterns just three days before the bank went under – Cramer is still a fairly influential figure. On the market, spikes or slumps observed in shares after comments of his are referred to as the “Cramer Effect.”

On September 21^st, Cramer was worried about two things: Volkswagen, which had lost 20% of its market value after having admitted to fraud in its cars’ air-pollution control software, and Petrobras. Speaking in front of a graph with the company’s financial indicators, he explained why he was calling attention to it. “I do worry about black swans,” he said, referring to rare and unpredictable events that bring down markets. “Because people didn’t see things in ’97, ’98 [at the time of the Russian crisis], and they didn’t see things in ’82 [the Latin American debt crisis].” According to Cramer, Petrobras’ main problem was its bonds, which at that point were being sold at 33% off face value. The bond market reflects investors’ fears that a business will not be able to honor its commitments. The deeper the distrust, the bigger the discount – and the harder it is to get new loans. The rates on that day indicated that if it wanted to bring in new money, Petrobras would have to pay at a rate of at least 10.5% per year, practically twice what it spent during the euphoric days of the pre-salt [3] (by late October, this figure was still hovering between 10-11%).

Gesturing with a sheaf of papers, Cramer went on: “I remember Russia. I didn’t think Russia could have an impact. There was a big Goldman bond deal, if you recall. Next thing you know, I was on TV talking about Russia, and I felt very ill equipped. I don’t want to be ill equipped this time, when we’re talking about Petrobras.” Using a finger to circle the company’s debt on the screen, he declared: “This is the number one problem in the world right now. Because [Petrobras] has so much debt, and people aren’t talking about it. Brazil, the eighth-largest economy, and people aren’t talking about it! And I think it’s falling apart.”

Though certainly the loudest, Cramer was not the only one to express concern. At the start of September, just after downgrading Brazil’s classification to the level of speculative investment (with a certain risk of default), Standard & Poor’s did the same with Petrobras. A month later, in October, the International Monetary Fund warned of the risk that the treasuries of Brazil and other emerging countries might have to bail out their state-run oil companies – apart from Petrobras, there was Venezuela’s PDVSA or Kazakhstan’s KazMunayGas – which might worsen their financial state even further.

Today, Petrobras has the largest corporate debt on the planet. By late October, when the exchange rate stood at R$3.96 to the dollar, the debt stood at R$520 billion (or half a trillion), of which 73% was indexed to the dollar. The stronger the dollar is, the bigger Petrobras’ problems. From June to September of this year, the debt grew around R$100 billion from the upswing in the dollar alone. In the corporate world, having debt isn’t a problem, as long as one has the means to pay it. The issue is that Petrobras’ debt is now equivalent to nearly six times the funds it generates in a year. No other oil company in the world is in such a critical state.

The reason Petrobras became so indebted is relatively simple: there was plentiful, cheap money to be had, and the company needed it. Oil was selling at $100 a barrel, the dollar was at R$2, and the company needed to increase production from 2 million to nearly 4 million barrels by 2020 – much of which would come from the pre-salt layer. In order to make this leap, the company drew up what was then the largest-scale investment plan in the world, envisioning $224 billion by 2014. It was a lot of money. But Petrobras also had one of the most promising oil reserves in the world – a “winning ticket” that would grant Brazil entry to the club of the largest oil powers on the planet. Anticipating this affluence, the government decided to make the state-run oil company into a key piece of the country’s industrial policy. Petrobras’ coffers would produce some of the major investments of the PAC, the Growth Acceleration Program. The company began constructing mega-refineries and subsidizing the rebirth of the naval industry and the strengthening of a supply chain, consolidated via contracts that stipulated a minimum of domestic content.

It was a magical moment, and all the major investors wanted in on the party. In 2010, the company brought about the largest capitalization in the world, raising R$120 billion – of which over 60% came from the federal government itself. This was a financial shot in the arm, fueling the company’s ambitions. Over the next three years, it would put out over R$300 billion in bonds and borrowed money from all relevant financial institutions. With the market’s confidence on its side, it paid low interest, something around 5% or 6%. The fact that it was all tied to the dollar didn’t seem like a risk, since once Petrobras became an oil exporter, it would have dollar reserves by the time it was forced to honor its debts.

Today it’s clear that nothing went as planned. Much of that money was consumed in activities or projects that are generating no revenue. Around R$160 billion went to refineries that still aren’t finished; R$120 billion were lost through exchange rate devaluation; and, according to the calculations of specialized consulting firms, another R$120 billion were consumed by the policy of subsidizing gasoline and diesel prices. Instead of the advertised 2 million barrels per day, the pre-salt layer produces around 800,000 barrels. Predictions of 4 million barrels a day by 2020 have been revised down to 2.8 million. Meanwhile, output from the Campos Basin, which remains dominant, has declined faster than predicted. If things keep on at this rate, in a decade Petrobras will have to substitute all of Campos’ output with pre-salt production just to keep total levels stable. Production on the new frontier, however, is significantly more expensive than at the Campos Basin – somewhere between 40-50%, according to a Goldman Sachs estimate.

Less production means less revenue. And falling revenue leads to cost-cutting. On the supply side, the mood is apprehensive. Contracts have been discounted up to 20%. Payments, once made in up to 30 days, now take up to 45. Construction projects by 34 of the companies involved in the Petrolão have either been taken back up by Petrobras or halted. Many companies had been hired on a contract basis – and the projects were eventually passed on to smaller firms which are now unsure as to how to receive their payments. The manufacturers of domestic machines and equipment alone have run up R$500 million in credit with these companies and Petrobras, according to the association for the sector, Abimaq, led by José Velloso.

Once an executive at a mechanical power transmission equipment firm, Velloso spent 23 years negotiating with Petrobras and its subcontractors. In late September he met with me in Abimaq’s offices in the South Zone of São Paulo to speak about the effects of the crisis on the state-run company. “Compared to the billions and billions that were spent and lost on corruption, their debt to us is small. But it represents the failure of the promise to use the riches of the pre-salt to revitalize domestic industry. Before, Petrobras would send us challenges and we’d do our best to come through on them. We all gained in technology and efficiency, we were an asset to the company. Now I see these guys looking out from the window on the 24^th floor, seeing their suppliers going under, going bankrupt, disappearing, buried in debt, and they couldn’t care less. There’s so much disorganization and they’re so lacking in resources that there’s nothing left that they can do.”

There was an air of a certain satisfaction and undisguised anxiety amongst the twelve bankers and executives awaiting Aldemir Bendine at the start of the afternoon on Friday, August 28^th, at Petrobras headquarters in São Paulo. Representing Santander, Bradesco, BTG Pactual, Banco do Brasil, Caixa Econômica Federal and Petrobras and Caixa’s pension funds, they were there as shareholders and creditors of Sete Brasil, a company created to construct and operate the drillships to be used in extracting oil from the pre-salt layer. According to the original plans, the company would build and operate 28 ships, rented out for periods ranging from 10 to 20 years. Like everything around Petrobras at that time, the order book, at 80 billion dollars, was the biggest in the world. The banks and funds that invested 4 billion dollars in Sete Brasil – in which Petrobras itself became a minority shareholder – were drawn by the promise of remuneration in dollars and annual returns of 14%. It was shaping up to be a gravy train. Another 4 billion dollars came in the form of loans from private and public banks. It had been agreed that BNDES would also finance the project.

The first order was due to be delivered by the end of 2015. But the cost of manufacturing in Brazil revealed itself to be much higher than predicted, and Sete was dragged into the Petrolão by its former director Pedro Barusco, who confessed to having taken 1% in bribes on every drilling contract. Given the crisis, BNDES canceled its financing; Petrobras itself began reevaluating its plans. Ships for which the company had planned to pay $520,000 a day would cost less than $300,000 on the international market. The deal no longer made sense for Petrobras, which also found that it wouldn’t need so many ships. Shipyards went under, and Sete also began operating under the constant threat of bankruptcy, leaving the banks with no hopes of recovering their investments. The only way out was to renegotiate the contract with Petrobras. By the time of the meeting in São Paulo, the number of drillships had fallen from 28 to 19 and daily costs had already fallen to $399,000. Sete had also agreed to pay fines for breach of contract. But the renegotiation had dragged along for months with no conclusion.

The executives waiting for Bendine in São Paulo knew that, days before, some of their superiors had gone to Brasilia to pressure the federal government to put an end to the deadlock. They were sure that that was what the president had invited them there to talk about. Indeed, Bendine seemed willing to make things move along. He promised that from then on, Petrobras would always send a high-ranking official to Sete’s meetings in order to accelerate decision-making. He also settled on a few other points involving the operation of the drillships and contractual fines, on which a consensus hadn’t yet been reached. It was agreed in the meeting that details would be hashed out between the president of the company, Luiz Eduardo Carneiro, and Petrobras’ director of exploration and production, Solange Guedes. Satisfied, Bendine said that his press officer was in the next room over and would put out the news immediately. By the end of the afternoon the information had spread across all the news sites.

The bankers’ optimism, however, would soon be dashed. On the following Friday, September 4^th, Carneiro sent an email to the director of exploration and production with the draft of the agreement, including the points suggested by Bendine. When he received no reply, he insisted on speaking with Guedes. On Tuesday the 8^th, she said in a phone conversation that she was unaware of any such agreement. And she sent Carneiro an eight-page document from Petrobras’ legal department in which the expressions “Petrobras does not agree to this point” and “this was not discussed by the negotiating committee” are repeated throughout.

Stunned, the president of Sete reached out to Bendine to find out what had happened. He heard from the Petrobras president that the latest document did not reflect what they had agreed upon, and negotiations went back to the control of the director of exploration. And thus it continues, by email and at a plodding rate.

If the contract isn’t settled by January, Sete Brasil’s money will run out, and it will depend solely on new contributions. On one hand, the end of the company would be a relief for Petrobras. On the other, it would represent a tragedy for the banks and pension funds, including Banco do Brasil, which will have to notch down a loss of a few billion reais. A few of these institutions are already considering suing Petrobras.

The episode made it clear that his tense relationship with the board isn’t Bendine’s only internal challenge. Of the seven directors currently at the company, only the financial director, Ivan Monteiro, whom Bendine had brought from Banco do Brasil, is an old acquaintance. Elek, director of governance (the post created by Bendine), was recruited on the market. The rest are in-house specialists who were temporarily promoted when Graça Foster led the mass exodus of directors. They remain there today.

With a 37-year career at BB, where he began as an intern and left as the president, Bendine is an unknown quantity for oil professionals, who regard him with suspicion. High-ranking employees complain that he doesn’t stay in meetings until the end and accuse him of lacking patience for longer discussions. “He asks you a question, listens to the answer for five minutes and then gets distracted with his cell phone,” one of them said.

At the start of September, the president met with an executive who advises Petrobras in his office. They spoke for two hours – about business in common, the difficulties with the fiscal adjustment, the turbulent environment in Brasilia, and the future of the Chinese economy. Two aspects of the wide-ranging conversation drew the interlocutor’s attention. First, at no point was Bendine interrupted by a ringing phone or an adviser. Secondly, there was his relaxed tone, as if he had time to spare. “It was if he were running the business from the 25^th floor,” he put it (the building only has 24 floors).

Subordinates, suppliers, and commercial partners can’t always find Bendine in Rio de Janeiro on Mondays or Fridays. On those days he often works from São Paulo, where his family lives, or at times from Brasilia. Internally, the habit has already won him the nickname TQQ – terça, quarta, e quinta, or Tuesday-Wednesday-Thursday. It’s become commonplace to hear in the corridors of Petrobras headquarters that when Bendine travels, the post is taken over by its real owner, Monteiro.

In a few weeks, the president of Petrobras is set to add yet another commitment to his São Paulo agenda: he was nominated by the company’s employee pension fund, Petros, to join the board of BRF, a holding company that controls the brands Sadia, Qualy, and Perdigão. He should receive around R$40,000 per month for his new duties as board member.

Amidst the friction between corporation and president, there emerges the curious figure of a gentleman with a good-humored air, corpulent and balding, with his remaining hair always slicked back with gel. This is Armando Sérgio de Toledo, 60, a retired judge from the São Paulo Court of Justice. Bearing a badge that identifies him as an adviser to the president, he holds meetings with suppliers, speaks with authorities and takes care of communication with Congress.

In late July, he also began speaking for Petrobras at the meetings of a group of federal deputies, who were discussing increased flexibility in anti-corruption legislation so that suppliers to the company involved in Operation Carwash might begin working for Petrobras again. “Petrobras is interested in separating CNPJs [legal entities] from CPFs [individuals]. Freeing up the companies to accept contracts again. There’s concern around resolving this as quickly as possible,” he said to the Estado de S. Paulo.

Since then, the former judge has met with representatives of struggling shipyards, such as Eisa Petro-Um, belonging to businessman Germán Efromovich (untouched by Operation Carwash). After delivering five ships to Transpetro, the shipyard stopped production in early July due to a lack of resources, leaving another three unfinished. Eisa is calling for R$384 million to finish them but Transpetro has preferred to cancel the order. “Toledo is trying to get an agreement, but as of now there’s been no result. Nobody at Petrobras decides anything. It doesn’t matter whom I talk to, the answer is always, ‘I like the company, but I like myself and my CPF [legal individual identity] more,’” says Efromovich.

In addition to the expected jealousy he provokes by taking over tasks previously reserved for in-house people, Toledo stands out for his past. Since 2013 he has been under investigation by the National Justice Council (CNJ), the disciplinary organ of the judicial system. He is suspected of having slowed down a suit so as to favor São Paulo state deputy Barros Munhoz, of the Brazilian Social Democracy Party (PSDB). The accusation of embezzling lapsed before it could be judged, after three years sitting on Toledo’s desk. At the CNJ, the judge’s case is heading the same direction. The relevant report by Minister Nancy Andrighi has been ready to be voted on since September 30^th, 2014. The decision to bring it up lies with Ricardo Lewandowski, president of the council (also the president of the Supreme Federal Court), and a friend of Toledo’s since their time together on the São Paulo Court. Last March, Toledo retired to work with Bendine at Petrobras. Two weeks later, he asked the CNJ to shelve his case, given that he was no longer a practicing judge. The request was not met.

Despite ill will within the company, Toledo has stood firm. In the third week of October, he could be seen in Brasilia in conversations with federal deputies and senators, whom he tends to address as “brother” and “my dear.” Of his priorities that week, one was to follow the outcome of the Parliamentary Inquiry Commission, or CPI, on Petrobras. Another was to delay as much as possible Bendine’s appearance before the Senate Commission on Economic Affairs to speak about the crisis at the state-run company.

He was not completely successful. In the Chamber of Deputies, the final report from the CPI, signed by Workers’ Party deputy Luiz Sérgio, placed Petrobras as the victim in the situation and did not recommend the indictment of any director not currently under investigation as part of Operation Carwash. The judge managed to swap Bendine for Monteiro and Elek, who are set to speak to the Commission on the morning of November 3^rd, the day after the All Souls’ Day holiday.

Toledo was only brought up short when he requested access to documents to be analyzed at a meeting of Petrobras’ strategic committee, set to deliberate on a new advertising campaign. The employees he had requested the papers from complained about his interference to the board members on the committee. The documents were not provided.

With the slogan “Open Doors at Petrobras,” the campaign had been presented in mid-September. Drawn up by the advertising agency Heads, the initiative was slated to spend R$39 million on short clips in which employees responded to questions from the public, in an attempt to communicate the message that the company is in dialogue with civil society. The strategic committee felt that the campaign’s message was out of step with the moment. “And when they start to ask about the employees accused of corruption? What are we going to answer?” the board members asked. Petrobras currently has around 800 employees under investigation, of which ten have been removed from the company for their involvement in the Petrolão. In the end, the campaign wasn’t approved.

At the time, the fact that FCB was under investigation in Operation Carwash wasn’t discussed. As part of the Carwash investigations, executives from Borghi, an agency from the same group as FCB, Interpublic, have been accused of paying bribes to Workers’ Party deputy André Vargas for contracts at Caixa Econômica Federal and the Ministry of Health. Following up on a tip from an informant, prosecutors are now investigating whether the R$311,000 that FCB gave to Vargas in February 2014 via companies subcontracted by the agency were some sort of reward for a contract with Petrobras finalized three weeks prior. Originally budgeted at R$110 million for the first year, the contract was extended through 2016 and now comes to R$224 million. Petrobras affirms that FCB will undergo a “process of integrity verification.” For now, the contract is still in effect.

On a Saturday morning days after the rejection of the first advertising campaign, board members received a message from the interim chair, Nelson Carvalho, a professor of accounting at the University of São Paulo who has substituted Murilo Ferreira. He said he was responding to a request from Bendine for his colleagues to, in an extraordinary measure, “authorize him to authorize” a new campaign over email. This time, the initiative would be the sponsorship of the Formula One World Championship.

The expense, around R$75 million, was above the spending limit for the marketing sector and thus needed the board’s approval. The company directors recommended that it be approved, arguing that Formula One was perfectly suited to Petrobras’ target audience and had high potential for return. The urgency in the matter stemmed from the fact that TV Globo, which broadcasts the event, would close its sponsorship quotas on that Sunday. Five board members – a majority, since the chair’s leave has left the group with just nine members – vetoed it. They saw it as an unnecessary expense at a critical moment for the company.

Ivan Monteiro dos Santos is a tall, thin man, with figure fit for the beach volleyball that he tends to play on weekends in the Rio de Janeiro neighborhood of Leblon. Quiet and cordial, he grew accustomed to stressful situations as an executive at Banco do Brasil. Since he took over as financial director at Petrobras, however, he has been seen by the company’s medical crew three times for symptoms characteristic of exhaustion. For a few days he had to take sleeping pills. Even for an experienced professional, untying the financial knot the company has gotten itself into is no simple task. In May, when the 2014 losses were defined – R$6.2 billion on Petrolão–related corruption and another R$44.6 billion of lost asset value – it became clear that Petrobras urgently needed new money.

Since then, Monteiro has won a few victories. He managed to roll over debts with his old bank, BB, and Bradesco. He brought $12 billion from China. He sold four platforms to gain liquidity, leasing them out immediately thereafter. Worldwide, he sold more than $2.5 billion in 100-year bonds – an extremely rare operation, interpreted on the market as a demonstration of strength. In all, he brought in R$58 billion. This meant that Petrobras came to the start of the second semester with R$96 billion available, and looked to survive 2016 without the need for new resources.

The situation, however, has taken a radical turn for the worse since June. The dollar took off, and Brazil lost its solid credit rating. Investors’ gloom, as expressed in the pessimistic comments from the always-theatrical Jim Cramer, made the company suspend its offering of shares in BR Distribuidora and $3 billion in new bonds, which had been set for October. Not even the 6% increase in gas and 4% increase in diesel have helped to reinvigorate the financial world. Money is drying up.

Cutting costs and selling assets has become more crucial than ever. Cuts are being made, but the second part hasn’t been easy for Petrobras. In June, the company informed that it planned to raise $15 billion by the end of 2016. Of that total, $3 billion would come in 2015 and the remaining $12 billion would come the following year. At the start of October, however, the company recognized that it would likely only raise $700 million this year. The goal has been slid over to 2016.

While the backsliding may give the public a bad impression, the situation described by those involved in the mission is even more complicated. I spoke with representatives from two banks authorized to sell assets and two heads at oil companies considering the purchase of some of Petrobras’ oil fields. They recounted a variety of obstacles to closing deals. One of the bankers found it tremendously difficult to arrange meetings in name of a client interested in assets in Latin America. At the start of October, Argentina’s state-run oil company, YPF, gave up on buying a 67% share in the local Petrobras subsidiary, alleging that they were unable to come to an agreement around price. Another entrepreneur gave up on an area of the Campos Basin after finding that the data presented did not include factors such as the existence of groundwater, which might affect production and costs. “I couldn’t calculate my return on investment with the data they gave me. Since the people at Petrobras are very competent, I got the impression that they were sabotaging the deal,” the investor said.

Indeed, one of the executives who consult on the sale plan in the exploration sector told me that he was advised to slow down sales. According to him, the low price of gas at the moment has made company specialists fear later accusations of having sold their fields for peanuts. “An oil company lives by buying and selling assets in order to balance its portfolio between exploration and production. Petrobras has spent most of its history buying. They don’t like to sell,” I was told by an executive at a multinational company active in Brazil.

Complaints about it being difficult to negotiate with Petrobras reached the board members, who, concerned, reached out to Isabela Mesquita Carneiro, the manager responsible for the sector. She was frank with them. She recognized that oil companies are resistant to getting rid of assets, but said that this attitude was slowly changing. When I shared this information with one of the bankers advising Petrobras, he shook his head: “I just hope that they realize it soon. Meanwhile, they’re acting as if they’ve got no sense of urgency.”

“How far is the ‘wall’?” That was the question that investment analysts at HSBC were trying to answer in a report on Petrobras distributed at the end of September. Market analysts like to give clever titles to their memos, but these documents rarely take a catastrophic tone. In 2013, the same HSBC team had published another text entitled “Faith No More.” In it, they declared that increased indebtedness, excessive government interference, and stagnant production had set off a pernicious trajectory. Now, they believed, the situation had only gotten worse. In response to the titular question, they wrote: “Time is getting shorter and the ‘wall’ is getting too close.”

In all my conversations over the past few months, I heard more or less the same thing in different forms. “It’s hard to imagine Petrobras declaring bankruptcy or something like it. But the dynamic, today, is that of a bankrupt company,” says engineer and consultant Adriano Pires, of the Centro Brasileiro de Infraestrutura. Among the indicators reinforcing this conviction is the size of its short-term debt. Of the $100 billion that Petrobras owes, $12 billion come due in 2016, another $12 billion in 2017, and another $44 billion between 2018 and 2019. Analysts estimate that, without new investment, the resources that Petrobras had on hand at the end of June will last, in a best-case scenario, through October of next year. If the real continues losing value, funds may run out sooner.

The outcome remains mysterious, although the arsenal of solutions is familiar: raise fuel prices; declare a tacit default on debts to creditors and suppliers and open up all debt renegotiation; or receive a new infusion of State resources. None of these options can be implemented without suffering or collateral damage.

Should the company wish to return to a traditional pattern of debt, it would need to adjust fuel prices by 60% – which, by way of comparison, if applied in one go, would drive inflation up at least 2.8%. The effects of a moratorium would be even more disastrous. The banking system is set to receive around R$70 billion in credit from the company. BNDES is owed another R$51 billion. And suppliers are due another R$30 billion. Since it seems impossible to envision Petrobras inflicting a seismic shock of that magnitude on the already reeling Brazilian economy, the way out seems to be through government coffers. In Brasilia and in the financial world, it is believed that this is the most likely solution.

On the market, one can find ever more recommendations such that from emerging market analysts at Credit Suisse, in a global teleconference with investors: buy Petrobras debt and sell Brazilian debt, since, at some point, the government will have to bail out the company. The bet seems to be the same across the board: Petrobras is too big to fail.

Aldemir Bendine was sullen by late afternoon on Friday, October 23^rd. The situation remained nebulous. Shares had dipped slightly. The company had just confirmed the cancelation of its offer of BR shares. The government was already mulling recognizing a deficit of around R$60 billion, which would make it even harder to aid Petrobras in the future. And as if that weren’t enough, the board meeting had been going on for ten hours and the discussion continued endlessly.

For the first time, the meeting was not being held at the headquarters, but in a building downtown where company management had been forced to move during a renovation. The new conference room was slightly smaller, and seemed even more cramped after such a long period of confinement. Some of the nineteen members and alternates had already left. The list of items was long, but the most difficult issues had been left for the end.

Bendine’s fatigue began turning to irritation when the transformation of managers into statutory directors, the measure he had supported, emerged yet again. Every time the topic was discussed, critiques emerged – “Just imagine a company with so many credibility problems promoting a ton of people to be directors,” someone said. “You’re making a fuss about nothing,” complained Bendine. Yet again, nothing was decided.

The bottom finally fell out in the next discussion, which turned to the infamous advertising campaigns. The CEO insisted on the Formula One sponsorship, the same deal that had been vetoed over email on a Saturday weeks earlier. He returned to the topic under the pretext that TV Globo had extended its deadline. Once more, he argued that it would be a good opportunity to advertise the Petrobras brand, and added that the price offered by the network was extremely attractive, the best possible. Nothing doing, said the board members. “The best way Petrobras can advertise itself is to fix its finances,” declared Nelson Carvalho, interim chair of the board.

Before the meeting ended, Bendine tried one more move: getting the board to approve a communications plan for the Internet and social networks. This was an adaptation of the FCB campaign, which had also been vetoed. This time, there was no talk of “open doors.” It was suggested that the spots featuring Petrobras employees be shown exclusively online, and that Bendine make institutional visits to communications vehicles to spread the word of the company’s progress. The board members, however, weren’t satisfied and began bombarding the directors with questions. Seeing that the discussion wouldn’t end anytime soon, Carvalho moved to table the issue until another day. This was the last straw for Bendine. “But this is hypocrisy! Now you’re going to start returning to things that have already been approved? Is there going to be no communication with Petrobras? Is that it? Well then there won’t be any communication,” he said agitatedly, raising his voice and already getting up from his chair. “This is a joke!” And he left, slamming the door behind him. The board members looked around, stunned, as silence descended on the room for a time. The issue remains unsettled.

[1] The Petrolão, or “big oil racket,” is the concise popular nickname for a sprawling framework of institutionalized corruption – racketeering, bribery, and money laundering – that appears to have grown around Petrobras over the course of the last decade, unearthed in 2014 as part of a still-ongoing investigation by the federal police.

[2] The investigation into the Petrolão is known as Operação Lava Jato (Operation Carwash), since it began with a probe into a carwash in Brasilia allegedly used for money laundering.

[3] In 2007, Petrobras had announced the discovery of extraordinary pre-salt reserves in the Tupi Fields, off the country’s southeastern coast. At the time, potential output was estimated at up to eight billion barrels – the largest deposit in the country’s history – and subsequent discoveries would push the estimated capacity of the pre-salt layer as a whole up to 70 billion barrels.