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November 16, 2010

Offshore Brazil

The global oil industry is only now coming to realise the potential of the massive reserves lying in the depths of the waters off Brazil. Ian McInnes takes a look at the risks and rewards of waking a giant on the verge of an oil boom.

By cms admin

The discovery of the nation’s Tupi oil field in 2006, which Brazil’s national petroleum agency (ANP) estimated could hold 8bn barrels of oil, could already have been surpassed by the announcement in October of a new field, dubbed Libra, which could hold up to 15bn barrels of oil.

In the space of a couple of decades these finds and others could catapult Brazil up the league of global oil producers to feature the nation prominently in the top ten.

ANP is erring on the side of caution however with Libra, saying “The volume of recoverable oil belonging to the nation could vary from 3.7bn to 15bn barrels, with the most likely estimate being 7.9bn barrels.” The test well has yet to be completed and there is seemingly a lot of wriggle room in the estimates, nonetheless, Brazil’s recoverable oil reserves are going to be around the 15bn barrels mark and possibly much, much more.

Deepwater drilling is the name of the game here and that requires the implementation of lessons learned from the Gulf of Mexico spill and also a large amount of local infrastructure and offshore manufacturing capacity.  

Boom town

“Nonetheless, Brazil has been in the oil industry’s sights for some time.”

Brazil’s newly elected president, Dilma Rousseff, potentially has an oil boom town situation on her hands, which can create problems if it is not managed carefully.

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Nonetheless, Brazil has been in the oil industry’s sights for some time and companies have already set up shop in offshore manufacturing. More will likely come, especially with Brazilian contracts requiring a major input of local content.

BP has already built a presence in Brazil and expects the trend to follow, according to new BP CEO Robert Dudley. While undoubtedly, manufacturing for offshore projects will still take place away from Brazil in centres such as Houston and Singapore and the shipbuilding yards in China and South Korea, increasingly there is a drive towards a Brazilian home based industry. With big deals such as the $7.1bn alliance between Sinopec and Repsol in October 2010, this is surely a question of when and not if.

Doing business in another country can be fraught with difficulties, however, as a company navigates the learning curves of regulations and the customs and practices of doing business that the locals probably know inside out. There are shortcuts to circumnavigate these areas such as, partnerships, joint ventures or even outright acquisitions, which appear to be occurring already.  

“The FPSO was upgraded at Keppel’s shipyard in Singapore and completed in Brazil.”

Wellstream International, for instance, set up shop in 2007 at its Niteroi manufacturing facility in Brazil. The Newcastle-based company is the world’s biggest manufacturer of flexible pipes that are used by energy companies in deep water. GE is in the market to acquire Wellstream and reportedly had a bid of around $1.2bn rejected in November 2010.

It is not known if a higher bid will be forthcoming from GE. However, media reports have indicated that other suitors could well be in the frame for Wellstream.      

The oil rush

In October 2010, conforming to its turnkey supply contract between SBM and Petrobras Netherlands B.V (Petrobras) for the Jubarte field, offshore Espirito Santo to fulfil the local content to 68 per cent, Keppel Offshore and Marine (Keppel) delivered the P-57 Floating Production Storage and Offloading (FPSO) vessel to SBM early and within budget.

The FPSO was upgraded and converted at Keppel’s shipyard in Singapore and completed in Brazil at the company’s BrasFELS yard in Angra dos Reis; it is set to be deployed in 2010 and will have a production capacity of 180,000 barrels of heavy oil per day (bopd).

Keppel has now converted 12 FPSO’s for the Brazilian offshore industry and is also set to move more of its production from Singapore to Brazil. “We have been equipping our yards and training our workers to take on more sophisticated jobs over the years, transferring expertise, technology and systems from our Singapore yards to Brazil in the process,” said Choo Chiau Beng, chairman of Keppel and non-resident Ambassador of Singapore to Brazil.

“As a result, our BrasFELS yard is today the most comprehensive offshore and marine facility in Latin America, and has been able to help to meet Brazil’s requirements for greater local content,” said Choo. “Our operations in the country will soon be augmented by our newest addition, the Keppel Singmarine Brasil shipyard in Santa Catarina, by the first half of 2011.”

Digging together

“This arrangement with Brastec offers the perfect opportunity to overcome all these challenges.”

Joint ventures and partnerships are another way to hit the ground running in Brazil’s offshore manufacturing industry. During the last quarter of 2009, Express Engineering, a leading sub-contract manufacturing company in the UK, linked up in a joint venture with offshore engineering manufacturing specialist, Brastec Technologies (Brastec) to form Petrotec Components de Precisão Ltda. (Petrotec). The new venture is already targeting business in oil, gas, aerospace and defence.

“We have been looking to establish a specialist manufacturing capacity in Brazil for some time but the challenges  posed by language, culture and distance are considerable,” said Express Engineering’s managing director, Nigel Davison.

“This arrangement with Brastec offers the perfect opportunity to overcome all these challenges.” Maurice Russel is Brastec’s director of business development and R&D, “There is a very big market in South America and our clients asked us to look at trying to supply them with more value added components,” said Russel.

“Our clients are already working in Europe with Express Engineering and they said why don’t good companies that we are already working with on different areas get together and help us?” Brazilian contracts have a heavy percentage of local content requirements to stimulate companies to go to Brazil and it would appear that major energy companies may be encouraging a shift too. “The big problem with international companies,” said Russel, “is knowing the country, knowing all the extremely difficult fiscal regulations and culture; being a Brazilian company we can help them with that.”

The lessons to be taken on board by companies wishing to establish an offshore manufacturing unit in Brazil seems to be that to get that local content and therefore a chance of a contract then the local knowledge and expertise must be working for you and with you. It is little wonder that there is so much activity in the sector and that should continue in the upward direction until the demand by the major energy companies is met.

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