RIO DE JANEIRO—Petrobras has been working hard to increase focus on E&P activities amid a corruption scandal and financial problems caused by mismanagement and low commodity prices.

Through an ambitious divestment plan and extensive E&P investments, the Brazilian stated-owned company intends to be a smaller company with great output.

The company has had great success in ultradeep waters over the last 10 years. Notable feats have come in its presalt portfolio, which has seen lifting costs fall, gains from contract renegotiations, optimization of support vessel logistics and reduced labor costs.

Petrobras could increase presalt investments, but its giant debt presents obstacles. The company’s current debt is about US$100 billion.

The analysis was made by Petrobras CEO Pedro Parente on June 26 during a gathering of Brazilian entrepreneurs and investors in Rio de Janeiro. Invited to discuss business opportunities for current and potential investors, Parente said Petrobras’ greatest challenge was to reduce its debt, the biggest among the world’s major oil companies.

“Our debt has brought consequences such as the increase in the interest rate demanded by our investors,” Parente said, recalling how the company’s former management decreased E&P investments for projects. “Most of these projects were not concluded, causing an increase of indebtedness without having achieved positive results for the company.”

The executive, who is celebrating one year as CEO this month, said Petrobras must pay $7 billion of interest annually because of this growing debt. “This value represents US$6 billion more than what other oil majors pay for their debt interest. With that amount of money, Petrobras could have a complete exploratory system of the presalt a year,” Parente said.

Petrobras also intends to intensify the deleveraging process, Parente added.

“We are working to bring down [our] net debt/EBITDA ratio to 2.5x by 2018. Nevertheless, this is not our final goal,” he said. “In my opinion, a healthy company cannot have a leverage superior than 1.5x.”

Petrobras’ net debt to EBITDA ratio was 3.2x in first-quarter 2017.

The oil major would also have a higher credit rating, but problems with Brazil’s rating downsize reflect the company’s credit evaluation by rating agencies, according to Parente.

Today, only Moody’s granted positive ratings of Petrobras, including the company’s senior unsecured debt and corporate family rating. The rating moved to B1 from B2 given lower liquidity risk and the prospect of declining debt leverage.

Standard & Poor’s position on Petrobras’ rating is stable, while Fitch’s rating is negative.

Petrobras also said that the company still expects to reduce its labor force. Parente pointed out that the last program to encourage voluntary disengagement was launched in 2016 but ended in May. At the end of first-quarter 2017, Petrobras had laid off roughly 6,000 employees.

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