Prates takes office as CEO of Brazil's Petrobras

The board of directors of Brazil's Petrobras PETR3 on Thursday approved Jean Paul Prates as the firm's chief executive, the state-run oil giant said, with the former senator taking office on an interim basis until April 13.

A longtime energy consultant-turned-politician, Prates was tapped for Petrobras' top job by President Luiz Inacio Lula da Silva and is expected to oversee a strategic shift to more renewable energy projects and larger investments in refining.

He was unanimously approved by the board, where he will also hold a seat, Petrobras said in a securities filing.

A source familiar with the matter said Prates would nominate picks for senior executive management on Friday, after meeting with Lula later on Thursday to discuss board appointees.

Sao Paulo-traded shares in Petroleo Brasileiro SA - as the company is formally known - dropped 2.5% following the news, making it one of the biggest decliners on Brazil's benchmark stock index Bovespa IBOV, which slipped 0.4%.

Markets fear Prates may dramatically change the company's fuel pricing policy, which currently pegs local prices to international rates such as foreign exchange and global oil prices but has been criticized by Lula multiple times.

Prates has previously said he did not intend to unlink fuel prices from those of international markets, but would unlink them from "import parity." He has also said the Lula administration would not take an aggressively interventionist approach to Petrobras.

Even so, analysts at Goldman Sachs said after Prates' approval they would remain neutral-rated on Petrobras despite an attractive valuation, "as we acknowledge increased uncertainty around policies to be adopted in the forthcoming years."

Prates, who served as a senator for the past four years and becomes the first politician to hold a high-ranking office at Petrobras in several years, has yet to be formally approved by shareholders at a general meeting.

"The challenge he faces is trying to place together a modern Petrobras, returning cash to shareholders, and the new government's more interventionist stance," said Paulo Valois, a partner at law firm Schmidt Valois Advogados.

Earlier in the day, the Brazilian Senate official gazette published Prates' resignation as a lawmaker.

Prates took over from Petrobras' production head Joao Henrique Rittershaussen, who had been serving as interim CEO since Jan. 4 after Caio Paes de Andrade resigned as top executive.