The Rise and Fall of Petrobras

The global oil and gas industry includes a mix of state-controlled national oil companies (NOCs), integrated oil companies (IOCs) such as BP, Chevron, and ExxonMobil, and many independent upstream and downstream firms, contractors, and suppliers. In most oil and gas-producing countries, natural resources are owned by the state and NOCs manage oil and gas on behalf of the state. The NOCs control about 90% of the world's oil and gas and most new oil is expected to be found in their territories. With the exception of the United States, Canada, and Australia, all of the major oil producing nations have NOCs. Many NOCs suffer from poor management, government interference, bloated payrolls, and corruption. Some NOCs, such as PDVSA of Venezuela and Pemex of Mexico, operate as the de facto treasury for their country. A few years ago Petrobras looked like one of the few well-managed NOCs. Petrobras’ stock was listed on the NYSE and the company was developing a reputation for deep technical expertise in deepwater oil and gas exploration, development and production. Brazil was on track to become one the world’s largest oil producers. An investigation in 2014 of a money laundering scheme code-named Lava Jato (Car Wash) was the beginning of Petrobras’ decline. By the end of 2015 it was clear that corruption was deeply rooted in the company and possibly reached the top of Brazilian politics. The rapid decline in fortune for Petrobras is the main teaching issue: how and why did it happen? How did such a strong company become victim to corruption, the oldest of NOC problems? Where were the internal controls and corporate governance?