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From humble beginnings, Petróleo Brasileiro S.A. (Petrobras) became one of the largest integrated oil and gas companies, gaining a reputation for sound leadership and strong technical expertise.  By the mid-2000s the company was often cited as one of the best managed national oil companies. By 2016 Petrobras was in a very different position.  The company was embroiled in a multi-billion dollar corruption scandal and was one of the most indebted companies in the world.  The decade-long corruption scheme reached the highest levels of business and Brazilian politics - Brazil’s President, Dilma Rousseff, was the chairwoman of the Petrobras board from 2003 to 2010.  Several senior Petrobras executives and Brazilian politicians had been arrested on allegations of bid rigging and bribery and more arrests were likely.  In 2015 Petrobras was forced to write down the value of its assets by $14.9 billion and take a $2.1 billion charge for the scandal.  Capital investments would be reduced significantly over the next five years in order to reduce debt and help recover investor confidence. 

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?


12 pages