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Story by Reuters

The chief executive and other senior management at Brazil’s Petrobras resigned on Wednesday amid a festering corruption scandal, setting off a scramble to find replacements capable of restoring investor confidence in the state-run oil company.

The company’s board of directors will meet on Friday to elect a new management team to replace Chief Executive Officer Maria das Graças Foster and five other senior executives, Petrobras said in a securities filing.

Most replacements will likely come from within Petrobras, but getting the scandal-hit company back on track – and get its accounts certified by auditors – could require an experienced CEO, possibly from outside the oil business, an executive with direct contact with Foster told Reuters. The executive spoke on condition of anonymity.

Petrobras shares jumped as much as 7.8 percent in early trading in Sao Paulo on the news before paring gains to close just 0.2 percent higher. The stock rose more than 15 percent on Tuesday – its biggest one-day gain in 16 years – helped by reports that President Dilma Rousseff had decided to replace Foster by the end of February.

The timing of the resignations came as a surprise to the Rousseff administration, which was hoping for more time to find potential replacements, a government source told Reuters on condition of anonymity.

The pressure on Foster to step aside had been mounting since Petrobras released unaudited quarterly results two weeks ago that did not include any corruption-related writedowns. On Tuesday night, protesters banged pots and pans outside Foster’s home in Rio de Janeiro when she returned from a meeting with Rousseff in Brasilia.

Before Wednesday’s resignations, Rousseff had asked Finance Minister Joaquim Levy, a University of Chicago-trained economist and former banking executive, to help sound out potential candidates for a new Petrobras leadership team, another government source told Reuters on Tuesday.

The names rumored to be under consideration for CEO include former banker and central bank governor Henrique Meirelles; the former chief executive of iron-ore miner Vale, Roger Agnelli; current Vale CEO Murilo Ferreira, former Petrobras and OGX executive Rodolfo Landim, and the former CEO of petrochemical company Braskem, José Carlos Grubisich.

Given the daunting task of turning around Petrobras and Rousseff’s reputation as a micromanager of the company’s affairs, it remains unclear if the government will find any takers for the job quickly.

Also resigning on Wednesday were Chief Financial Officer Almir Barbassa and the heads of the gas and energy, exploration, refining and engineering divisions. Recently appointed corporate governance manager João Elek and corporate affairs chief Jose Dutra did not resign, a source with direct knowledge of the matter said.

Investors have been betting that a more market-friendly leadership team at Petrobras will help the firm regain credibility and ramp up production and boost profit.

“Graça (Foster) was not the biggest problem at the company, but it’s a message,” said João Pedro Brugger, an equities analyst at Leme Investimentos in Florianópolis, Brazil. “The company is trying to tell the market that its management will become more professional.”



The Petrobras scandal has snowballed into a major headache for Rousseff, who served as chairwoman of the company’s board between 2003 and 2010. During that time, Foster rapidly climbed the company ladder, eventually becoming CEO in 2012, just over a year after Rousseff became president.

Police say they uncovered a price-fixing, bribery and political kickback scheme that benefited Rousseff’s Workers’ Party and other parties from the ruling coalition. Three former Petrobras directors and three dozen others, including executives from major engineering firms, have been arrested.

Both Rousseff and Foster have denied any knowledge of the scam, and neither has been charged with any wrongdoing.

Rousseff’s political opponents, who saw Foster as the president’s last line of defense, have sped up efforts to launch congressional investigations into the kickback scheme, seeking to hold her government responsible for allowing the corruption.

The scandal will move closer to Rousseff later this month when prosecutors plan to name politicians from her party and coalition allies who allegedly received kickbacks from overpriced Petrobras contracts as campaign contributions.

The illegal activity, authorities allege, diverted at least $3.7 billion and perhaps more than $28 billion from Petrobras coffers.

Petroleo Brasileiro SA, as Petrobras is formally known, said last week that the corruption was one of several factors that helped wipe out a net 61.4 billion reais ($22.7 billion) from the value of its assets, such as refineries and oil platforms. Still, it refused to take a charge against earnings.

Petrobras, whose ADR is ofen one of the most actively traded shares on the New York Stock Exchange, is the world’s most indebted major oil company, with a total debt of 332 billion reais ($121.6 billion).

For the shares to continue rising, Petrobras will have to do much more than just appoint new senior management, said Leonardo Alves, analyst with Votorantim Corretora in São Paulo.

“We believe replacing Foster will not solve the company’s problems,” Alves wrote in a note to clients. “There are still too many risks regarding the corruption scandal, and we are not fully convinced that the new chief executive will necessarily be an improvement.”

“We remain skeptical on Petrobras shares,” he added. ($1 = 2.73 Brazilian reais)