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EDITORIAL
We are delighted to deliver to you our June issue of our monthly Newsletter, carefully-prepared in partnership by Energy Exchange and Heller Redo Barroso & Associates.
As our previous newsletter, we furnish you with an editorial prologue comprising our insights and analysis regarding the major news and opportunities that have just arisen on the Brazilian horizon. Further, we also provide a “short hand” version of the most important news items detailed herein.
We appreciate your readership and hope you enjoy our newsletter as much as we enjoyed preparing it. |
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| Chinese Giants on the Move! |
Later in this newsletter, we report that Statoil has agreed to sell a 40% stake in Peregrino field to the Chinese company Sinochem for $3.07 billion. This is another example of an upward trend in the Chinese investments that we chronicled at the beginning of this year.
Chinese companies are consolidating a substantial position in the Brazilian economy, representing 6% of the foreign investments in the country (over US$359 million through March).
Even the well-known Brazilian entrepreneur Eike Baptista has succumbed to Chinese charm. Eike’s company, OGX, is looking forward to having a Chinese refining partner for the construction of a refinery at the Port of Açu, in Rio de Janeiro State.
We mentioned in our last newsletter that “many world-class companies are sitting on the sidelines while the Chinese are marching in big time to Brazil.” Question is: “What will be the focus of Chinese investments in Brazil?”
Recently, in an article published in a major nation-wide Brazilian newspaper (you can download the translation of this article at www.hrblaw.com.br), we stated that these investments in Brazil are not limited to the upstream sector (acquisition of offshore blocks participation).
These upstream acquisitions are a major step toward entering the refining and petrochemical industry. In fact, most of the Chinese companies acquiring participation interests in Brazilian offshore blocks are derived from China’s Petrochemicals industry (SINOCHEM, SINOPEC, etc).
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| Midstream Revolution – Surge on the Petrochemical’s Investments |
According to specialists, the Brazilian petrochemical sector will require over US$90 billion in order to meet the country’s demand through 2020. Consistent with this, Petrobras is studying the possibility of constructing a petroleum calcined coke plant (CCP) in Saudi Arabia.
Once more we are signaling that the petrochemical sector “will heat up during the upcoming months in Brazil” (we warned you to believe us). So, if you are interested in an in-depth presentation on the coke industry in Brazil and the potential business opportunities, you will find it readily available for downloading on www.hrblaw.com.br.
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| Petrobras’s Endless Shopping List |
Petrobras has received seven proposals from shipyard and fabrication groups bidding to supply the first two deep-water rigs in a 28-unit Brazilian building program. The procurement is divided into three packages.
In fact, Petrobras will invest more than US$174 billion through 2013. In the Pre-salt area alone, Petrobras expects to invest over than US$111 billion through 2020.
Currently, the company is carrying out over 23 development and production projects.
To support these projects, Petrobras will initiate acquisition programs to acquire: 500 generators, 350 turbines, 700,000 tons of steel , 550 wet X-mas trees, 500 well head plataform, 80,0000 hydraulic pumps, 18,000 storage tanks, and more than 400km of flexible lines and pipelines. Petrobras’s preliminary list already has more than 55,000 items, including FPSOs, Drilling packages, high technology subsea equipment, etc.
Companies interested in participating in the upcoming tenders should rush to register before Petrobras’s database of validated suppliers and service providers (“RCC”).
This must be considered as a mandatory step for anticipating Petrobras’s acquisitions. Several companies have been disqualified in Petrobras’s tenders due to the lack of RCC registration or out-of-date information regarding the inclusion of a particular product line or service.
The RCC registration is long and complex. Companies are required to submit literally more than a hundred detailed documents and certificates. The registration also involves some complicated issues, such as the Petrobras’s on-site inspection of Company’s facilities, which may take several months to be scheduled.
Heller Redo Barroso & Associates is highly recommended for the obtaining of CRCC numbers (the certificate of registration in the RCC) in a fraction of the time that most competitors are take to. Given the registration complexity, we have now added to our repertoire a specific presentation on the RCC enrollment, which is available for downloading on our webpage (www.hrblaw.com.br). |
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| Petrobras Capitalization – Capital Required for Pre-Salt Exploration |
Petrobras’s board approved an increase in its corporate capital, a necessary step toward a massive share offering required to help fund its $220 billion four-year investment plan. The company may issue up to 2.4 billion preferred shares (compared to 200 million previously) and 3.2 billion voting shares, according to the new limits set by the board.
Board approval of new issuance limits does not mean that the company will sell the entire amount of stock at once as it still needs Congressional approval for the plan to swap oil reserves for shares. Meanwhile, Petrobras executives are also making an assessment of international assets they intend to sell.
In our opinion, Petrobras is trying to diversify the capital sources for pre-salt exploration, whether through the approval of the oil bill in Congress or through the sale of strategic assets worldwide.
We have posted on the HRB webpage a list of Petrobras's International Assets, which may be of interest to foreign companies and is available for downloading.
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| Vessels Demand Upward Trend |
In our last newsletter we stated that “As we see it, the skeptics should revisit their stances: the construction of sophisticated yards to meet Petrobras demand is already materializing, and much sooner than even most optimistic expected. This is no wonder: on top of the windfall of Petrobras and Transpetro orders, hoast of coastal trade companies not related to Petrobras will likely follow suit shortly as their fleets are old and unsuitable for new contracts.”
We stick by our previous words. The shipyards sector is undoubtedly mushrooming! OGX is in talks to contract a second floating platform to further exploit finds in the offshore Campos Basin. Petrobras confirmed its 28 deep-water rigs Brazilian building program.
Moreover, in this month shipyards representatives requested to Rio de Janeiro municipality a reduction in the municipal services tax (ISS) rate from 5% to 2% regarding shipbuilding activities. Such reduction aims to encourage the development of this lucrative sector in Rio, by attracting shipyards seeking to take advantage over competitors through a diminished tax burden. With Petrobras’s demands rising, such companies will be able to offer a reduced price on biddings for the oil company’s new vessels.
As we see it, this tax relief program may trigger a tax war with other municipalities offering to reduce their ISS rates to become more attractive for the shipyard industry.
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| Articles in the Oven |
In order to make this newsletter more concise, we will not as previously publish a full article in this issue. However, we want our readers to know that we will be releasing shortly a new article: “Chartering a Vessel to Brazil – Whether ANTAQ rules apply or not”.
Other articles currently under work include: (“Registration with Petrobras’s Database of Validated Goods Suppliers and Services Providers”; and “Use of Forms in Shipping Industry”. As usual, our published articles can be downloaded from our webpage (www.hrblaw.com.br).
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| Rio Pre-Salt Congress – June 7-9, 2010 |
The much anticipated seminar "Pre-Salt Brazil 2010", posed to be the largest and most important gathering so far on opportunities in the Brazilian oil and gas industry, is practically sold out and ready to launch!
Confirmed key speakers include:
- Márcio Zimmermann - Minister of Energy
- José Sérgio Gabrielli de Azevedo - CEO, Petrobras
- Sérgio Machado - CEO, TRANSPETRO
- Almir Barbassa - CFO, Petrobras
- Julio Bueno - State Secretary of Rio de Janeiro for Economic Development, Energy, Industry, and Services
- Key senators and other congressional representatives.
So, if you're serious about competing in the Brazilian oil and gas marketplace, you simply can't miss it!
Once again, thanks for your interest in our newsletter. That saidI hope you'll enjoy reading it as much as we enjoy preparing this monthly industry update.
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Heller Redo Barroso
Founding Partner
Heller Redo Barroso & Associates |
Igor Tavares
General Manager for Latin America
The Energy Exchange |
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| UPSTREAM NEWS |
| BW Offshore to Complete FPSO in Brazil |
BW Offshore has received authorization to proceed with the completion of FPSO OSX-1. The FPSO is owned by OSX and will operate for OGX in the Waimea oil field in the Campos Basin offshore Brazil. The scope of work includes topside modifications and the delivery of a Submerged Turret Production (STP) system from APL, a division of BW Offshore.
The value of the work is expected to be US$150 million.
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| OGX identifies connectivity in Campos Basin finds |
OGX Petróleo e Gás Participações has discovered further hydrocarbons in the shallow water southern sector of Brazil’s Campos Basin.
The OGX-6 well in the Etna prospect was drilled to a depth of 3,604 m (11,824 ft), with evidence of hydrocarbons in the carbonate reservoirs in the Albian and Aptian sections, as previously announced in March.
OGX says the results should improve its understanding of the geological parameters of the block, where the drilled reservoirs exhibit characteristics similar to those identified earlier in the OGX-2A and OGX-3 wells. Analysis of data obtained to date suggests that the Albian and Aptian reservoirs of Pipeline (OGX-2) and Etna prospects are a single connected accumulation at each geological layer, says OGX.
Further studies are needed to verify whether the Waimea (GX-3) and Fuji prospects area are also a single accumulation.
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| Sinochem snaps up Peregrino stake |
Norway’s Statoil has agreed to sell a 40% stake in the deep-water Peregrino offshore field to China’s Sinochem for $3.07 billion. This is China’s second major oil and gas deal in Latin America since March. Statoil maintains a 60% share and operatorship of the field which will begin production early next year.
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| OGX lines up second Campos platform |
Brazilian oil and gas company OGX is in talks to contract a second floating platform to further exploit finds in the offshore Campos Basin. The new platform will be used on the Vesuvio or Waimea projects, which are situated in shallow water sites in the Campos Basin. OGX estimates recoverable reserves of between 2.6 billion and 5.5 billion barrels of oil in the seven Campos Basin blocks it operates.
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| Petrobras takes further acreage offshore Portugal |
Petrobras International Braspetro has signed an agreement with the Portuguese government to explore hydrocarbons in the country’s deep offshore waters. Under such agreement, Petrobras has 50% operated stakes in the Gamba, Lavagante, and Santola blocks in the Alentejo Basin. The concessions cover an area of around 9,000 sq km (3,475 sq mi), in water depths ranging from 200 to 3,000 m (656-9,842 ft).
These stakes add to four other blocks that Petrobras already operates off Portugal in the Peniche Basin in partnership with Galp and Partex.
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| Subsea 7 bags Petrobras rig gig |
Subsea 7’s i-Tech division won a contract from Petrobras to supply remotely operated vehicle and intervention tooling services for offshore drilling rigs. The contract covers 20 to 30 offshore drilling rigs and is valued at $250 million to $405 million, depending on the final number of drilling units and the number of personnel deployed.
Tech will provide a newly designed ROV based on its successful Centurion QX work-class ROV. The ROV systems will be mobilized in Brazil onboard rigs currently on hire to Petrobras and onboard several newly-built rigs. The contract duration for each ROV ranges from five to ten years with an option to extend the contract for each ROV at the end of the initial term.
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| Petrobras unveils new Campos finds |
Brazil’s state-owned Petrobras has unveiled two new discoveries in its 100%-owned Caratinga field, about 106 km off Rio de Janeiro.
The Carimbé (or 6-CRT-43-RJS) well drilled in 1,027 meters of water detected oil in both pre-salt and post-salt areas. Preliminary estimates indicate recoverable volumes of about 105 million barrels of oil equivalent.
A light oil accumulation was also found in the pre-salt at a well depth of 4,275 meters. The pre-salt oil find appears to be an extension of the accumulation detected by the BR-63A 6-RJS well in the Barracuda field.
Petrobras said the extension, if proven, would lift the combined recoverable oil reserves to 360 million barrels of oil equivalent, up from the previous 40 million boe reserve estimate for the previous Barracuda find.
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| Petrobras unveils new Campos finds |
Petrobras received seven proposals from shipyard and fabrication groups bidding to supply the first two deep-water rigs in a 28-unit Brazilian building program. The bidding is divided into three packages. The first calls for just two Petrobras-owned units with designs open for semi-submersible, drillship, and unconventional designs.
The bids were submitted by Keppel Fels, Jurong Shipyard, Andrade Gutierrez, Engevix, Eisa, Estaleiro Atlantico Sul (EAS), and Odebrecht/UTC/OAS.
The second stage calls for drillships sub-divided into lots of seven units per year. Petrobras could award up to three such contracts, depending on prices.
The third phase of the bidding will offer contracts for charted units, also to be built in Brazil. Bids are due to be received on June 9. All rigs must be capable of operating in up to 3,000 meters of water.Back
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| Offshore Tax Decrease |
| Rio de Janeiro received a proposal to decrease ISS rate from 5% to 2% related to navy constructions. The scope of the proposal is to enable the project that will revitalize Inhaúma/Ishirás and Sermetal shipyards. The project was announced during the public hearing of “Revitalization of the Shipyard Industry in Rio de Janeiro”. Back |
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| MIDSTREAM NEWS |
| Petrobras and Galp Introduce Biofuels Partnership in Lisbon |
| On May, Petrobras and Galp Energia signed a cooperation agreement for a biofuels production project in Portugal. The companies will build a biodiesel production plant at Galp's Sines refinery, which will process feedstock produced in Brazil. The agreement is an extension of the partnership that has already been announced for the production of palm oil in Brazil. Back |
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| OGX plans refinery with the chinese in Brazil |
The partnership in the oil sector between OGX and China will involve the construction of a refinery at the Port of Açu, in Rio de Janeiro. Negotiations are being held with all companies of China's refining sector and will be a condition for the Asian giants to receive crude oil from the Brazilian oil company.
The plant size will depend on the volume of OGX’s oil production.
Besides the plans for Brazil, where OGX begins production in the first quarter of 2011, the company earmarked $200 million for the start of its operations in Colombia, as it prepares to participate in Colombian bidding round to be held in June.Back
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| Petrobras executes preliminary agreement to invest in Saudi Arabia |
Petrobras executed a preliminary agreement with Modern Mining Holding Company Limited to perform feasibility studies for the development, financing, construction, and operation of a petroleum calcinated coke plant (CCP) in Saudi Arabia.
The Project may be constructed in Jubail or Raz az Zawr and willl produce up to 70,000 tons of CCP per year. Petroleum green coke will be provided by Petrobras.
The investment is estimated to be US$450 million divided in installments between the parties. The project may also receive financing from governmental and financial institutions. The operation of the plant is expected to begin in the second semester of 2010.Back
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| OTHERS ISSUES |
| Petrobras’s Divestiture Program |
| Petrobras stated that a divestiture program is currently under analysis. Company executives are making an assessment of assets in the international portfolio they intend to sell. Company executive manager Rogerio Mattos informed that after the discovery of pre-salt, the overseas expansion has been disregarded. Back |
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| Petrobras is Evaluating Stock Sales Assets to Help Finance Pre-Salt Exploration |
| Petrobras plans to invest up to $220 billion from 2010 to 2014, including projects to explore the region's pre-salt reserves. The area includes the Tupi field, the largest oil discovery in the Americas in more than 30 years.
The president of Petrobras, José Sergio Gabrielli, said that the company would raise $ 15 billion to $ 25 billion by selling new shares to minority shareholders, to maintain its level of indebtedness within the goals and meet its investment program. Back
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| EBX and Chinese Company Closes Deal for the Construction of a Steel Plant |
| Chinese Wuhan Iron & Steel (WISC) and Eike Baptista’s Group (EBX) has closed the deal for the construction of a steel plant with the capacity of 5 million ton of steel slabs per year. LLX, EBX’s logistics affiliate, is negotiating a second plant, whose partner will be announced by the end of the year. Back |
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| Petrobras Has Signed for the Charter of New Vessels |
| Petrobras has signed for the charter of seven vessels with businesses Pan Coast and King Fish, which will build four 30,000 thousand ton vessels and three 45,000 thousand ton vessels, respectively.
The vessels will be delivered between 2011 and 2014, the same deadline as 12 vessels chartered last year.
In late May, the company will launch the second program of hiring vessels, known as Brazilian Shipping Company program (EBN), which should involve the same number of vessels as in the previous program. Back
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| Brazil, Iran strengthen energy ties |
Iran and Brazil have signed a memorandum of understanding to cooperate in the area of energy, including the exploration and production of hydrocarbon resources. According to Iranian news service Shana, the memorandum was signed by Iran’s Petroleum Minister Dr. Masoud Mirkazemi and Harold Lima, Director of Brazilian National Petroleum Agency.
The parties have agreed to set up a joint energy committee that will hold sessions every six months. During the signing meeting, Iran declared that its companies were ready to participate in Brazil’s projects and invited the Brazilian delegation to participate in Iranian LNG programs.Back
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| Petrobras share move gets nod |
Petrobras’s board has approved an increase in the company’s capital base - a necessary step for a massive share offering to help fund it’s $220 billion four-year investment plan. The company may issue up to 2.4 billion preferred shares, compared with 200 million previously, and 3.2 billion voting shares, according to the new limits set by the board.
Petrobras' bylaws had barred the company from issuing voting shares previously.
The new limits on share issuance will be voted on by a general shareholders on June 22. The board approval of new issuance limits does not mean the company will sell the entire amount of stock at once as it still needs Congressional approval of a plan to swap oil rights for shares.
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| Sources: Reuters, Energia Hoje, Brazil Energy, TB Petroleum, OGlobo, Upstreamonline, Rigzone, Bloomberg, Petrobras Agency, |
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