| |
EDITORIAL
In our August edition, Petrobras acquisitions are, once again, shinning. Important news include the commencement of Premium refineries earthworks and issuance of new rules, such as ANTAQ charter regulation and the Capitalization bill.
As for the Brazilian regulatory framework for exploration and production of hydrocarbons, only one oil bill remains in discussion: the Social Fund and Production Sharing Contract bill. According to the members of the Lower House, the new framework will probably be voted once the presidential elections are concluded.
As usual, we appreciate your readership and hope you enjoy our newsletter as much as we enjoy preparing it.
Heller Redo Barroso
Founding Partner
Heller Redo Barroso & Associates |
Igor Tavares
General Manager for Latin America
The Energy Exchange |
|
 |
| ANTAQ Rules Imposes Constraints to Charter Schemes |
In the beginning of this year we announced that ANTAQ was discussing changes to Brazilian chartering rules. However, ANTAQ recently informed that all discussions have been concluded and the new rules is about to be approved.
The new regulation imposes all Brazilian Shipping Companies to adopt a model of Time Charter Party in maritime/port support, coastal and long haul navigation, banning the old split model (90% bareboat charter + 10% operation and services agreement).
At the risk of being repetitive, we emphasize our May edition newsletter (http://hrblaw.com.br/news/2010/mai/) remarks:
"The direct effects of this are: (i) Renegotiation of contracts (ii) Surveillance by ANTAQ regarding charter authorization (when needed) (iii) Debate over the extension to the new unified time-charters of the REPETRO special customs duties suspension regime. The Brazilian Internal Revenue Service in its first reading of the situation, decided in some concrete cases that the new time-charters should be taxed as services contracts not eligible to REPETRO. This means taxation in the neighborhood of 60% for all foreign vessels chartered by Petrobras, let alone the application of municipal taxes worth up to 5% in some municipalities.
The matter is serious. But in our opinion it won't adversely affect rig owners since Petrobras contracts provide for the upward adjustment of daily rates in case of increase in tax burden. Therefore, in the new contracts, these taxes will be factored into bids for all competitors, thus it will become a cash-neutral issue for most contractors. In fact, Petrobras is the one likely to get burned. Taking into consideration the role of the company in Brazil and world-wide, we sincerely believe that the company will very shortly come up with an arrangement with the IRS , whereby REPETRO will continue to be applied to charter of foreign rigs and support vessels.
The matter has political ramifications. Naturally, municipalities and the IRS wish to boost their tax collections and not miss the boat from the new oil bonanza. Despite this, we still believe that Petrobras' interests will prevail. Noone wants additional tax burden to even partially jeopardize the country's pre-salt exploration campaign.
The IRS and municipalities should know better: if they tax rigs big time, there will be fewer rigs, and less activity in the oil and gas sector. Over the long-haul, the amount of taxes that could be directly and indirectly generated by a more intense activity in the industry will undoubtedly prove much higher than the customs duties and municipalities services taxes that are now being at issue. It is also important to highlight that a strong precedent from STJ, Brazil's highest court of justice for non-constitutional matters, certainly will apply to this case.
The decision is from end 2009 and establishes that charters (time-charters, bareboat charters, or voyage charters) cannot be taxed as services. This means that the 0,5%-5% municipality taxes, as well as withholding federal taxes worth 33% (grossed up from 25%) cannot be levied on revenue from these kinds of contracts. Since the decision encompasses time-charter, the taxation burden on the Petrobras charters may even be reduced if this precedent is upkept by the court, as today 10% of the charter is allocated under a different services agreement and taxed.
Based on this court decision 100% of the contract value would be exempt from the taxes mentioned above. We cannot assure that this decision will be up kept by other courts since it is not binding on them and also very recent, but the court award is very solid and well researched and we believe it will have a very strong influence in the Brazilian legal system. The decision does not address the matter of customs duties, but, as we said, this is a matter that will soon be solved by Petrobras and the Brazilian IRS in view of REPETRO.
Finally, we remind the readers again that this initial confusion as to the new yet-to be published regulation will not adversely affect rig- and other MODU- and ship- owners over the long-haul.
We are more concerned with the companies catch in this window between the decision of Petrobras in changing the structure of the contracts in view of the upcoming regulation and the final arrangement that will certainly be reached by Petrobras and the Brazilian IRS with respect to this matter. We have a sort of gap or limbo where companies may suffer losses in view of the lack of definition of these issues. Several of our clients are already seeking our legal advice as to how to protect themselves."
Back
|
|
| Petrobras on Shopping Spree |
Petrobras accelerated its procurement program. During the last month, several contracts were awarded or extended comprising a spectrum of equipments and vessels, from drilling rigs to turbines and compressors. With respect to local hiring, Petrobras recorded an increase of 500%. Local Content policy also experienced an overwhelming growth between 2003 and 2010, increasing the minimum requirement from 57% to 77%.
Back |
|
| Oil for Share Procedure – Green to Go! |
Since the "oil for share" bill has already been sanctioned by President Lula and the auditor that will assess the reserves values has already been contracted, Petrobras is on the verge of the capitalization procedure. Through this plan, the Government will swap up to 5 billion boe reserves for Petrobras's shares.
Currently two areas have been indicated for the onerous assignment: the Libra and the Franco fields. However, other areas may be assigned, especially areas that possibly contain part of reservoirs from fields already under Concession (in process of unitization – such as the Iara field).
Back |
| |
| Enforcing Safety Parameters for Pre-Salt Exploration |
In view of the enormous figures associated to Macondo oil leak damages, the Brazilian Government created a task force composed by the National Agency of Petroleum, Natural Gas and Biofuels (ANP), Brazilian Navy and the Environmental Agency (IBAMA) to issue a contingency plan against oil spill.
As we previously stated, Brazil has several mechanisms to impose stricter safety parameters in exploration and production activities. However, this contingency plan aims at coordinating actions of all agencies involved. Additionally, Petrobras also has its own contingency programs for operational safety and oil leaks.
We dare to say that operational safety is poised to become a major issue in Petrobras future acquisitions. As a matter of fact, Health, Safety and Environment aspect already is the major criterion in Petrobras Vendor and Suppliers List evaluation.
Back
|
| |
| Local Content and the Refining Sector |
Petrobras demands for local content regarding new units in the Petrochemical/Refinery sector have increased from 72% to 80%. For the purpose of achieving this temerarious nationalization level, the management of several Refining units has composed a working group to increase the index of local content for the new projects, especially Premium refineries and COMPERJ.
Back
|
| |
| UPSTREAM NEWS |
| Keppel Beats the Street With Eye On Brazil |
Singapore's rig builder Keppel Corporation is banking on Brazil to help it tide over a difficult phase as the biggest oil spill in the Gulf of Mexico hurts demand for new rigs.
Last year's global recession slowed orders for rig makers and the industry has come under further pressure following BP's oil spill, which triggered a US Government moratorium on deep-water drilling.
Keppel is now hunting for deals from Brazilian state-owned oil company Petrobras which wants to buy 28 rigs in the next five years. Back
|
|
| Petrobras Makes Find In Brejo Grande |
Petrobras found evidence of oil in an onshore well in Brazil's Brejo Grande field The discovery was made at the 3BRSA849dpse well in the Sergipe basin. The company has not determined if the find can be developed commercially.
Back |
|
| GE Nets Petrobras Deal |
US-Based GE Oil & Gas has struck a $160 million deal with Petrobras to supply gas turbine and compressor equipment for deployment in two floating, production, storage and offloading vessels set for operations offshore Brazil.
The vessels, FPSO P-58 and P-62, will be deployed in the north of the Parque das Baleias field in Espirito Santo and the Roncador field in the Campos basin. The FPSO's are scheduled to come online in 2013 and will support combined production of 360,000 barrels of oil per day.
The equipment will be manufactured in Florence, Italy, with full load string and performance tests conducted at GE's production site.
Back |
|
| Repsol Finds Oil in Brazilian Block |
The company is the operator of the block and owns 40% of the consortium between Petrobras, Vale and Woodside Petroleum. Repsol finds evidence of oil in S-M-673 block, Santos's basin. The company owns 40% participation interest of the consortium that includes Petrobras (35%), Vale (12,5%) and Woodside Petroleum (12,5%).
Back |
|
| Petrobras Orders Eight LPG Vessels |
Transpetro executed a contract with Promar shipyard for the construction of eight LPG vessels, in the total amount of US$ 536 million. The first vessel shall be delivered in 2013.
Such acquisition is part of the fleet improvement and expansion program (Promef), by which 46 vessels were acquired for the amount of 4,7 billion. The last three vessels are being bid.
According to Promef rules, all shipbuilding constructions shall have a minimum local content of 70% regarding the equipments and services provided. The shipyard which will build the new vessels will be located near Atlântico Sul shipyard, in the Complexo Industrial e Portuário de Suape.
Back |
|
| Subsea 7 Wins Petrobras ROV Gig |
Subsea7's i-tech division has won a $50 million ROV deal from Petrobras. The contract runs for a fixed five-year term plus an option for another five-year extension. The mobilization of the equipment and personnel is expected to start in the third quarter of 2010.
Tech will provide two centurion QX work-class remotely operated vehicles (ROV) and several high precision ROV-mounted sensors, including inertial navigation and sound velocity equipment, which are linked to a navigation software program to allow the integration of positioning sensors onboard the vessel.
Back |
|
| Petrobras Pulls Back Tender |
Petrobras has postponed to the end of July the tender to contract 24 topsides modules for its P-58 and P-62 floating production, storage and offloading vessels.
The tender was originally launched in March, but contractors have been requesting more time to go over the huge list of technical requirements before submitting their final bids. It was divided into three smaller packages containing four modules for each of the two similar designed floaters. One contractor can only be awarded a maximum of two lots.
A total of 28 companies were invited to take part in the tender to supply Petrobras with oil treatment, gas treatment, dehydration, carbon dioxide removal and sulphate removal modules, among others.
The two FPSOs are expected to enter service in 2014. The P-58 will be positioned at the Baleia Azul field, while the P-62 will be deployed in the Roncador field. Both units will have a production capacity of 180,000 barrels per day of crude and 6 million cubic meters per day of natural gas.
Back
|
|
| BW Offshore Bags OSX Floater Work |
Norwegian floating production specialist BW Offshore has been awarded a $150 million contract to modify and complete a production floater acquired by OSX Brasil. The floating production, storage and offloading vessel, OSX-1, was acquired from Norwegian company Nexus in 2009.
BW Offshore will act as the project manager, providing engineering services, detailing the equipment required for the customization activity, and supporting the procurement process. The work scope includes topsides modifications for heavy oil processing, water separation and power generation as well as a delivery of a submerged turret production system from BW Offshore's division, APL.
The project will be completed mid 2011. The production floater is set to go on a 20-year charter with OGX and will be deployed in the Campos basin off Brazil.
Back |
|
| Acergy Condor Stays with Petrobras |
Oslo-listed Acergy has won a $220 million flexible pipelay contract from Petrobras. The contract involves the deployment of construction vessel Acergy Condor to lay pipes in up to 2000 meters of water. The deal follows more than twelve uninterrupted years of similar work by this ship for Petrobras.
Back |
|
| Fifth Semisub Gets In Gear On Tupi Field |
The fifth semi-submersible rig dedicated exclusively for drilling operations in the BM-S-11 license off Brazil has started working for Petrobras, as the day approaches for the oil company to declare commerciality of the giant Tupi pre-salt field.
Transocean's semisub Cajun Express started the drilling of another appraisal well inside the Tupi ring-fence to further delineate the discovery. Four additional semisubs are currently drilling a mix of appraisal wells and wildcats in Block BM-S-11. The Seadrill-owned West Eminence and West Taurus rigs have been on location since last year, while the Victoria and West Polaris joined the effort in April and June, respectively.
Seven wells have been concluded so far and Petrobras hopes to complete up to 16 by the end of the year to gather the largest possible amount of data from the area. Tupi is estimated to hold between 5 billion and 8 billion barrels of oil equivalent and Petrobras has until December to have the field's declaration of commerciality in place.
The pre-salt push in the prolific Santos basin is expected to gain strength, as Petrobras will put into operation at least four new units capable of drilling in more than 2000 meters of water in the next few months. The next ones in line are the Diamond Offshore semisubs Ocean Valor and Ocean Baroness. The two rigs are being submitted for acceptance tests in Rio de Janeiro state and will be cleared soon.
Another Seadrill-owned semisub, the West Orion, arrived off Brazil in early July and has since been prepared for start-up operations. The rig was chartered for a six-year period and will likely be deployed at the nearby BM-S-9 block, home of the Guara and Carioca discoveries.
Back |
|
| Seadrill Spins Bit Offshore Brazil |
| Seadrill informed that the ultra-deepwater semi-submersible rig West Orion has commenced drilling operations for Petrobras offshore Brazil. West Orion, which was delivered from Jurong Shipyard in Singapore on April 20 this year, arrived offshore Brazil in early July and has been preparing for start-up of operations. West Orion is chartered to Petrobras under a six-year contract for operations offshore Brazil. Back
|
|
| Karoon to make its debut off Brazil |
Australian oil player Karoon Gas expects to make its offshore debut in Brazil next year with the drilling of at least two prospects in the shallow-water southern portion of the Santos basin.
The company recently completed a wide azimuth 3D seismic survey covering 730 square kilometers over its five blocks in the area, which are on trend with the Piracuca, Guaiama and Caravela oilfields. The campaign was carried out by WesternGeco using the Western Patriot and Geco Diamond vessels, in order to fulfill the third-year work program commitments and prepare Karoon for future drilling activities.
Five prospects associated with three diapiric salt structures have been worked up and Karoon plans to spud its first well — Pico do Jaragua East — in the fringe of blocks BM-S-68 and BM-S-69 about April 2011. Karoon has also identified four other prospects to be drilled by mid-2013. Monte Roraima North and Monte Roraima South are in Block BM-S-70, while Morro da Igreja East is part of the BM-S-61 concession.
The company is also working on the farm-out process of a minority 30% participation interest at its five blocks in an attempt to reduce risks and share the exploration costs.
Back |
|
| OGX Detects Oil |
OGX has detected the presence of hydrocarbons in the Albian section of well 1-OGX-15-RJS in block BM-C-41. The Santa Helena prospect showed a column of oil of 96 m with a net pay of 32 m in carbonate reservoirs. OGX owns 100% of the area.
The prospect lies in waters 158 m deep in the southern part of the Campos Basin, approximately 79 km off the coast of the state of Rio de Janeiro. The drilling, to be done by the Ocean Ambassador, will continue until reaching a total depth of 3,450 m.
Back |
| |
| MIDSTREAM NEWS |
| Petrobras Executes Earthworks Services Contract for a Refinery in the State of Maranhão |
| Petrobras and Galvão-Serveng Consortium executed an earthworks, bleeding services contract with the purpose of preparing Refinery Premium 1, located in the State of Maranhão, to receive processing units. Such contract has a term of 960 days. Back |
|
| Petrobras Appraises the Possibility to Build Petrochemical Cluster in the State of Espírito Santo |
| The company is evaluating the opportunity to build a petrochemical cluster in the State of Espírito Santo for the purpose of using all the natural gas produced in the state. The new cluster shall be located near to the natural gas treatment unit in Cacimbas, Linhares. Back |
|
| Ibama Grants Prior License to Petrobras for the Commencement of the Construction of an Ethanol Pipeline |
The project will be executed by PMCC Projetos de Transporte de Álcool S.A, a partnership between Petrobras, Mitsui&Amp CO. and Camargo Corrêa S.A. and shall take place in 2011. The companies shall comply with the conditions set forth in the prior license in order to obtain the installing license required for the commencement of the works.
The pipeline system will transport ethanol from Centro-Oeste and northwestern Region of São Paulo to the coastal region of Rio de Janeiro and São Paulo, where the fuel will be transported to other States pursuant coastal navigation. It will have two collecting spots – Uberaba and Ribeirão Preto.
Petrobras is planning the pipeline system expansion up to Senador Canedo terminal and the implanting of new ducts connecting Paulínio to Paraná-Tietê waterway and to São Sebastião maritime terminal. Back |
| |
| OTHERS ISSUES |
| Petrobras's Acquisitions Increase US$ 20,7 Billion in Six Years |
In the last five years the company recorded an increase of 500% with respect to the local hiring. Besides that, Petrobras's politics regarding local goods and services acquisition raised the minimum local content from 57% to 77,34% between 2003 to 2010.
Currently, the company is developing 2 oil tanker fleet renewal program, seeking the construction of 26 and 23 vessels, corresponding to 65% and 70% local content, respectively.
Another Petrobras's venture is the development of the first dry dike with capacity to build drilling and production semisubmersible units in the State of Rio Grande do Sul. Eight oil rig-ships are being construed in Brazil, demanding at least 70% of local content.
Concerning the revitalization of the national refinery sector, demands for local contents are of 72%, minimum, and for new units are among 70% and 80%. Back |
|
| GALP Acquisition on Hold |
Petrobras Board of Directors will not approve the acquisition of participation interests in Galp's corporate capital until the election, in October. Due to such fact, Eni informed Galp's board of directors that its participation of 33% in the company's corporate capital was no longer for sale.
The Portuguese Government was expecting the closing of the deal until the summer, taking into account Petrobras's capital increase, which would support the acquisition of 25% of Galp's corporate capital. Back
|
|
| Government Develops National Plan against Oil Spill |
The government proposal forecast the development of the first contingency plan in order to avoid accidents during the exploration of oil in the seawaters. The project shall be developed by ANP, jointly with IBAMA and the Brazilian Navy.
Currently, Petrobras develops its own contingency programs. The decision was taken after BP's accident in the Gulf of Mexico. Back
|
|
| Training Requirement to Attend Pre-Salt Demands |
| Pre-salt exploration will require the training of 10 thousand operators until 2014, which will be financed with Prominp's resources. Such demand for specialized personnel is pushed by the operation of the 28 rigs which are being bid by Petrobras. Each vessel will require from 180 to 200 direct operators, besides the services providers's personnel. Back |
|
| Petrobras May Lease Rio De Janeiro's Port in Order to Attend Pre-Salt Demands |
The company shall lease an area in Rio de Janeiro's port in order to increase mobilization of supplies for the drilling rigs under operation in pre-salt area in Santos basin. The port is assessing the concession of a terminal to attend 24 platforms.
Petrobras was making use of the structure of Companhia Docas, which managers the port, to supply 12 drilling rigs. Due to the increase of Petrobras's demands, Companhia Docas intends to lease the terminal to it.
Companhia Docas did not set up a date to the performance of the bidding so far. Back
|
|
| Petrobras Seeks Shareholder Approval |
Petrobras will seek shareholder approval of a plan to complete a complex capitalization program that is a key step to its exploration for oil in one of the world's most promising offshore areas.
Petrobras will ask shareholders to pass a plan to hire auditors PricewaterhouseCoopers to carry out a valuation of floating-rate Treasury notes that the company wants to use in the $85 billion capitalization. Such capitalization should eventually help the government to increase its stake in the company from the current 32% and allow minority shareholders to subscribe new shares
An assembly was called for August 12 to discuss the proposal. Back |
|
| Lula Controls "Oil for Share" Swap |
Brazilian President's administration will have the "final word" on the price of oil reserves that Petrobras will buy from the government. The government may set a different price on the deep-water reserves than is recommended in an audit by ANP.
As part of new oil regulations introduced by Lula late last year, the government plans to swap as much as 5 billion barrels of deep-water reserves in the pre-salt area for stock in state-controlled Petrobras.
The swap and offering are part of plans to finance $224 billion of spending to develop fields including the offshore Tupi. Petrobras may need to pay the government as much as $8 per barrel for reserves, or up to $40 billion, according to Credit Suisse analysts.
Although, if Lula's administration increases the value of the oil barrels significantly above of what the auditor's price assessment is, the participation in the share issuance will drop.
Back
|
|
| Petrobras Cashes Up |
Petrobras has received a loan of 2 billion reais from the state-run bank Caixa Economica Federal. CEF lent Petrobras a similar amount in 2008 during the global financial crisis as credit lines from foreign investors dried up.
Petrobras plans to launch one of the world's largest-ever share offerings, including an oil-for-shares swap with the government. That will help raise as much as $25 billion for its push to develop massive offshore reserves. Back
|
|
| Repsol Closer to IPO of Brazilian Company |
Spain's Repsol is close to choosing to float part of its reserve-rich Brazilian upstream assets rather than sell a stake to finance development of the oilfields. Repsol estimates its Brazilian acreage will provide it with over 170 million barrels of oil equivalent in proven reserves in five years.
The oil group thinks a 40% capital increase at its business in Brazil followed by an IPO would be enough to fund its five-year, $5 to 6 billion development plan for the area, without resorting to prior asset sales or further debt issues.
Back |
|
| NOV Sees 82% Jump in Profit |
US oilfield services company National Oilwell Varco (NOV) posted an 82% jump in quarterly profit that topped Wall Street forecasts, while its backlog of orders slipped again. On top of the operational "headwinds" from the Gulf of Mexico spill, the Houston-based company's outlook has been hit by delays in a few dozen new rig awards from Brazil's Petrobras, which NOV is expecting to arrive by early 2011.
As past orders out of Brazil continue to flow through, NOV added one Brazilian rig equipment award in the second quarter, and two more would flow into backlog this quarter. NOV is accelerating the launch of a new blow-out preventer as the industry scrutinizes that equipment following the rupture of the BP Gulf of Mexico well in April.
The company is also gearing up to equip the growing number of companies developing shale plays in the US and elsewhere, particularly in Europe.
Back |
|
| Antaq Intends to Approve Rule Regarding Commercial Operation |
ANTAQ intends to approve rule to govern regulatory criterion applicable to commercial operation of vessels by Brazilian Shipping Company (EBN). The notice was disclosed by the Agency's general-director.
The proposal was already subject of public hearing. It comprises important concepts such as: nautical management of the vessel; commercial management of the vessel; bareboat; time charter; EBN; and commercial operation of long haul and coastal navigation, maritime support and port support.
Besides that, it establishes requirements for the approval of commercial operation, including: bareboat of a vessel does not verify its commercial operation by the freighter; commercial operation related to long haul will be verified by presenting bill of lading issued by EBN; cargo transportation exclusively regarding oil, its derivatives, natural gas and biofuels through long haul and coastal navigation, as well as maritime support and port support operations. The EBN that does not prove the commercial operation according with the rules's requirements shall be subject to the applicable penalties, including authorization repealing.
Back |
|
| Obama Sees Brazil as a Model |
The president of the United States, Barack Obama, cited Brazil as an example of clean energy production, especially sugarcane ethanol. The statement was made on Monday (July 12) after meeting with the president of the Dominican Republic, Leonel Fernández.
Ethanol production is a key part of the region's energy independence, Obama said, adding that the present example could be followed by the Dominican Republic.
The United States in 2007 adopted a rule for expanding the use of ethanol and other biofuels into the American market. The idea is to quadruple the consumption of renewable fuels, to more than 136 billion liters annually by 2022.
Back |
|
| Local Content Working Group |
The management of Rnest and the suppliers of machines and equipment for the refining sector have created a working group to monitor the auction process for the plant. The Group will look for strategies to increase the index of local content as well as for other projects such as Comperj and the Premium refineries.
The group is composed of Abimaq, IBP, Firjan, Fiesp, Sebrae and Onip, the BNDES and representatives from Rnest. These organizations will together evaluate the competitions on a case-by-case basis to determine the strategies for a local acquisition. The technical conditions for the suppliers will be analyzed as well as taxes, fees, interest and payment conditions.
Back |
|
| Belo Monte Has 18 Partners |
The Specific Purpose Company (SPC) that will be set up for the construction and exploitation of the Belo Monte hydroelectric plant (11.233 MW), of the Xingu River (Pará), will have 18 partners. The consortium handed in to the National Electric Energy Agency (Aneel) yesterday (14/7) the documentation required to set up the company.
The consortium is made up of state companies, construction companies, energy self producers and pension funds. The largest participation in the SPC is Eletronorte with 19,98%, followed by Eletrobras (15%) and Chesf (15%), making up a total of 49.98%.
The construction firms hold 12.27% and the pension funds have 27.75% of the SPC, leaving 10% for the energy self producers.
Back |
|
| Aneel Approves TL Results |
On Tuesday, July 20, the National Electric Energy Agency (Aneel) approved the results of the transmission auction 01/2010 held in June. At the occasion, a total of 708 km and 11 substations were sold.
The nine lots for the transmission lines were won by five companies and one consortium with the state companies Chesf, Copel and Eletrosul taking two lots each.
The delivery of the projects is set for 2012. Investment is expected to be around R$ 700 million (US $ 390 million).
|
| |
|
| Sources: Reuters, Energia Hoje, Brazil Energy, TB Petroleum, OGlobo, Upstreamonline, Rigzone, Bloomberg, Petrobras Agency, |
| |
