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EDITORIAL
In view of the blooming energy market, the US President, Barack Obama, emphasized Brazil is poised to be the next safe hub for smart money when it comes to energy and oil and gas. According to Obama, the United States is willing to strengthen the relationship between the hemisphere's two largest democracies and economies (US and Brazil).
Brazil is also preparing to launch the Eleventh Bid Round. However, it is quite clear that no pre-salt blocks will be auctioned until the Brazilian Congress concludes the “royalties war” discussion, as we previously stated in our past newsletters.
We expect to see some newcomers in this bid round, most notably the new oil company XYC, from Rodolfo Landim, former Eike Batista’s henchman and famous for its success in the oil and gas market.
Other important news directly from the oven are the modifications in the Brazilian Concession Contract.
The major changes include:
(i) Wildcats found during exploration phase but declared timely will be extended as usual, however the Contract now foresee a time limit for such extension;
(ii) ANP´s right to suggest modifications to the Development Plan due to changes in law or new oil & gas industry practices, at any time;
(iii) Any hydrocarbon losses (including blowouts) are now included in the royalties and governmental participation calculation;
(iv) ANP´s time limit to audit local content documents increased from 5 to 10 years;
(v) Research and Development clause clarifications and the creation of ANP´s R&D Committee;
(vi) Inclusion of clauses regarding technical qualification for operating some blocks (Operator Grade);
(vii) Term extension due to halted/slow Governmental Environmental licensing procedure: Concessionaire shall receive the days in excess for the attainment of the licenses not caused by its own fault;
(viii) Small changes in the unitization procedure, most notably the fact that the newest Contract clauses will be applied to the Unitization Agreement, and the establishment of a period for ANP´s technical decision in case the Unitization parties do not reach an agreement (limited to 120 days now).
ENERGY
As previously stated in our main editorial, US President visit represent a new dawn to Brazilian energy market. President Obama praised Brazilian commitment to greener energies, emphasizing that “half the vehicles in this country can run on biofuels, and most of your electricity comes from hydropower”.
Obama also stated that “United States and Brazil are creating new energy partnerships – to share technologies, create new jobs, and leave our children a world that is cleaner and safer than we found it”.
We foresee that this recently forged alliance will probably result in huge investments in Brazilian energy sector from US investors. Further, Brazilian companies aiming to an international expansion will also find open gates to the US market, especially in relation to hydropower technology.
However, this month will also be remembered by the Japanese tragedy and its consequences in the energy sector, especially in relation to Nuclear energy and its safety standards. Similar to the hysteria caused by US Macondo’s oil spill last year, the nuclear contamination provoked by the Japanese tsunami has caught Brazilian Congress attention.
Brazilian Congress is currently discussing the Brazilian Nuclear Energy Program and the monitoring procedure of all governmental authorities related to nuclear energy. However, the Brazilian government also reinforced that investments in the construction of Angra III (the new nuclear power plant) and the nuclear energy expansion program will not be halted.
It is important to notice that energy system relying mainly on hydropower also requires a supplementary energy source, usually thermal energy, in order to guarantee energy supply during hydro shortage periods. For that reason, in accordance to Brazilian government statements, the country will have to invest in nuclear energy, as well as other energy sources, such as wind power.
SHIPPING
Shipping
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%.
Further, Petrobras, which plans to revise its Investment Plan this year to include the development of new reserves it bought from the government as part of a $70 billion share sale, aims to produce 2.1 million barrels per day in Brazil this year, up from an average of 2 million barrels last year.
According to the company´s Chief Executive, Jose Sergio Gabrielli, Brazilian State-controlled giant Petrobras can “easily” double its 15 billion barrels of proven oil reserves in four to five years. However, in order to reach this daring goal, Petrobras will require several vessels, offshore technology and state of art solutions.
As an example, Petrobras has decided to create a holding company (SET Brasil) as part of its plans to tap massive crude reserves deep beneath the ocean floor. SET Brasil would buy drilling rigs and then rent them to the state company, the newspaper said. Petrobras would take a minority stake in SET Brasil, with control shared out between investment funds from Brazil and abroad.
Further, other examples of Petrobras colossal shopping list is the new Petrobras’s tender for Santos Basin, seeking more than 100 kilometres of umbilicals for the Guara and Lula North-East pre-salt pilot projects. Local content is again expected to be high. International groups Oceaneering and Prysmian, and local player MFX, are tipped as front runners to secure the contract. They are the only ones with umbilical factories in Brazil.
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 |
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| OIL AND GAS NEWS |
| Japan asks for more LNG, oil supply from Indonesia after quake |
Japan asked Indonesia to supply it with more liquefied natural gas (LNG) and oil after a devastating earthquake crippled a nuclear power plant.
"After the tsunami and earthquake, Japan's nuclear power plant is damaged and we have a massive shortage of electricity...therefore I asked Indonesia's government to add to its imports of liquid gas and crude oil to Japan," Japan's Vice-Minister for Foreign Affairs Makiko Kikuta told reporters in Jakarta.
Indonesia, a former OPEC oil producer, is the world's third-largest LNG exporter and the largest exporter of thermal coal for power plants.
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| BG to invest $30 bln in Brazil this decade |
BG Group will invest up to $30 billion in Brazil over the next decade, seeking to tap fast-growing reserves of crude and natural gas in Latin America's biggest economy, Chairman Sir Robert Wilson confirmed. BG expects to produce 550,000 barrels of oil a day by 2020.
The London-based oil and gas group, which recently named Brazilian-born executive Fabio Barbosa as its Chief Financial Officer, will spend $1.5 billion on a technology center through 2025, as "a first step towards making Brazil a provider of technological solutions globally," BG said in a statement.
Wilson, after visiting Brazilian President Dilma Rousseff, said he expects that about 30 percent of BG's revenues will come from Brazil by the end of the decade. BG has focused on Brazil's so-called subsalt region, home to the largest oil discovery in the Americas in more than 30 years.
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| Reserves to Double by 2016 |
The proven reserves of Petrobras could more than double in the next five years, a period in which Petrobras could declare the commerciality of fields that contain between 10 and 16 billion barrels of oil equivalent (boe). The Brazilian reserves would reach 36 billion barrels. The estimate was made by José Sérgio Gabrielli, Petrobras’ CEO.
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| O&G and Renewable Partnerships |
British energy companies that are set up in Brazil are now expected to increasingly seek partnerships for the development of projects in renewable fuel segments, said the U.K. Ambassador to Brazil Alan Charlton, adding that the oil sector should be of most interest to them for the next few decades.
The ambassador also emphasized the Anglo-Brazilian partnerships that already are underway in Brazil, such as Shell-Cosan and BP-CNAA in the field of biofuels and was looking forward to similar accords in other areas. “We are also interested in cooperating with Brazil in offshore wind parks,” he revealed. Such plans are in line with the United Kingdom’s government energy policy, which has set aside US$ 900 million to support clean technology investment.
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| LDT without Resumption Date |
The long-duration test of the Guará prospect in block BM-S-9, in the subsalt cluster of the Santos Basin, will only resume after all causes of the accident that occurred on February 27 and 28 have been clarified.
As there are no plans yet to restart the project, which is the second LDT being carried out in the subsalt discoveries and the first location of the Dynamic Producer that was converted at the Sembawang shipyard in Singapore.
The Guará´s production system was interrupted after the FPSO Dynamic Producer of Petroserv presented problems and the well was closed. On February 28, the riser of the SPS- 55 well burst.
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| Ibama licenses 145,000 Km² |
Ibama has issued both a prior and operating license to Petrobras for drilling and completing up to 120 wells per year in the Santos Basin Geographic Area (AGBS). The license encompasses about 145,000 km², extending from Arraial do Cabo (State of Rio de Janeiro) through Florianópolis (State of Santa Catarina), including subsalt blocks.
The region is divided between the Uruguá, Mexilhão, Merluza, Subsalt, and South centers, with water depth ranging from 75 m to 2,700 m.
Ibama defined, as condition for continuing the project, the implementation of the Environmental Characterization Project of the Santos Basin, surveying primary data of physical, biotic, and socio-economic means, and monitoring projects for the purpose of analysis of the support capacity of the basin in the long term, among others.
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| ENERGY NEWS |
| Eletrobras to Invest US$ 6 B |
Eletrobras announced on March 18 its 2011 Investment Budget. The company plans to disburse R$ 10.16 billion (US$ 6.12 B). The generation sector will receive the largest part of the resources, R$ 3.3 billion (US$ 1.98 B), plus R$ 658.3 million (US$ 396 M) for maintenance.
The transmission sector will have R$ 2.2 billion (US$ 1.3 B) and R$ 381.2 million (US$ 230 M) for maintenance, while the distribution sector will dispose of R$ 704.8 million (US$ 424 M) and R$ 192.8 million (US$ 116 M) for maintenance. Research, infrastructure, and environmental quality will receive R$ 626 million (US$ 377 M) and financing inversions with partners will have R$ 2 billion (US$ 1.2 B).
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| Brazil to raise Safety Levels |
Aloizio Mercadante, Brazilian Minister of Science and Technology, said on March 17that stricter international protocols of safety for nuclear power plants should be set up due to the accident in Japan and that all of them should be applied in Brazil.
“What happened in Japan has never been recorded in Brazil. We only have the risk of flooding and the plants are prepared for this”, pondered the Minister, during a press conference at BNDES development bank, pointing out that the Brazilian plants can support earthquakes of up to 6.5 degrees on the Richter scale and waves up to 7 m.
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| Wind Parks and Roraima Highlighted |
The growth of the Northeast transmission grid and the connection of Boa Vista (Roraima) with Manaus (Amazonas) are the highlights of the Transmission Expansion Program (PET) disclosed on March 24 by the Energy Research Company (EPE). According to the document, investments of approximately R$ 8.5 billion (US$ 5.1 billion) are scheduled for the transmission industry over the next five years.
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| Energy Consumption Up 4% |
Energy consumption in February through the National Interconnected System (SIN) was 35,360 GWh, representing an increase of 4% over the 33,900 GWh consumed in the same month the previous year.
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| Aneel approved Elektro Sale |
The National Electric Energy Agency (Aneel) Board of Directors approved on March 22 the sale of the São Paulo electricity distribution company Elektro to Iberdrola. Ashmore Energy International (AEI) sold Elektro to Iberdrola for US$ 2.4 billion in February. Although, the deal is still under review by the Economic Defense Administrative Council (Cade
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| Thermal Plants on the Run |
The National Operator of the System (ONS) demanded that four thermoelectric power plants that run on fuel oil to operate during the carnival this year.
Together the plants produced 136 MW average on the first day, 114 MW average on the second, and 121 MW average on the last day. The reason was to guarantee the electric supply to the states of Acre and Rondônia.
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| SHIPPING AND OFFSHORE INDUSTRY NEWS |
| Floating Solution |
Petrobras is planning to prepare the bidding process for the acquisition of an FSO and subsea equipment to create its first Ocean Terminal this quarter. Called the Offshore Unit for Transfer and Export (UOTE), the project has a budget of US$ 500 million and will be used to bring out the large volume of oil exports expected from the pre-salt frontier.
Designed for shallow waters, the terminal will be used for export operations, transferring the oil from the producing platforms capable of processing and adapting the oil to international specifications on the high seas. Although its emphasis is on international trade, the new system also could service the demand for oil of the new refineries, especially the Premium Refineries in Maranhão and Ceará.
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| Sete Brasil Managers Named |
The Board of Directors of Petrobras have approved José Ferraz and Pedro Barusco for the positions of CEO and Director of Operations, respectively, of Sete Brasil, the independent holding company that will be responsible for new drilling rigs with capacity to reach 3,000 m that will be built in Brazil.
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| HRT to Contract Rigs |
HRT Oil & Gas expected to launch soon a tender to contract three rigs. The units, two for drilling and one for work-over, will operate in the southern blocks of the Solimões Basin in the Amazon. The work-over unit will be sent to three of the 11 hydrocarbon fuel accumulations already identified in the region.
The idea is to open wells to begin production as soon as possible, announced Márcio Mello, the CEO of the company.
The constant rainfall in the Amazon region has postponed the plans of the company to start drilling the block in March due to a consequent delay in the arrival of helicopters into the site with equipment.
The start of drilling is now scheduled to early April.
The company, which already has two rigs available in the region, predicts the arrival of two others drilling rigs until May. The goal is to have up to seven operating in October.
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| Pre-Salt Compressor Proposals |
Petrobras has set April 4 as the deadline for the delivery of proposals for the supply of centrifugal compressors for eight replicant FPSOs.
The tender calls for an increase in domestic content from 35% to 55%, except for the CO2 compressor, which will increase from 20% to 35%. The units will have to be delivered between 2012 and 2015. Competing for the package are GE, Siemens, Dressler, Elliott, MAN and Mitsubishi.
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| Seismic Studies in Jequitinhonha |
PGS has signed a contract with Petrobras for the acquisition of 3-D seismic data in the block BM-J-4, in the Jequitinhonha Basin in Bahia. The company has already received of environmental license from Ibama authorizing the campaign to begin.
The license is valid until February 2012, and specifies that the activities be carried out by the Ramform Challenger or the Ramform Valiant vessels.
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| Pre-Salt Expands Tanker Fleet |
Petrobras expects to expand its fleet of oil tankers to about 50 units, between its own and chartered vessels, over the next six years due to the heavy demand of the new pre-salt frontier.
Currently, the oil company operates about 150 tankers. The target is to reach 30 units able to work with the platforms by 2017.
The demand for 50 new vessels should open up space for initiating new stages of both the Transpetro Fleet Modernization Program (Promef) and one run by the Brazilian Navigation Companies (Empresas Brasileiras de Navegação - EBN).
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| Sources: Reuters, Energia Hoje, Brazil Energy, TB Petroleum, OGlobo, Upstreamonline, Rigzone, Bloomberg, Petrobras Agency, |
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