Edition nº 21
Source of investments
To reach the target of producing 1.8 million barrels of oil per day by 2020, in the pre-salt layer alone, Brazil reinforces its partnership with Canadian investors that have a lot of experience in the exploration of difficult to access areas.
LOUIS GÉNOT, from Rio de Janeiro
The pre-salt layer discoveries, spread out over an 800-kilometer stretch off the coast of the States of Espírito Santo and Santa Catarina, aroused worldwide interest in the Brazilian reserves. Attracted by projections showing that the national capacity may leap from the current 14.4 billion barrels of oil equivalent (oil and gas) to between 70 billion and 107 billion barrels, small and large companies have turned their attention to Brazil’s fuel industry, responsible, nowadays, for approximately 10% of the Gross National Product (GDP), 7% of Brazilian exports and 12.5% of federal tax revenues.
The Tupi area alone, located in the Santos Basin, in the State of São Paulo, has recoverable volumes estimated at between 5 and 8 billion barrels of oil equivalent, already identified as being of low acidity and low sulphur content, which are characteristics of high quality and higher market value. In the case of the Iara area, also in the Santos Basin, and the ‘Whale Park’ area, in Espírito Santo, these volumes could total, respectively, 4 billion and 2 billion. Canadian companies – acknowledged for their long experience in the exploration of difficult areas -, anticipating future business opportunities, are emphasizing their differentials, such as specialized know-how and already celebrated partnerships in Brazil.
To foster the exchange of know-how, in October, a trade mission of Brazilian companies led by Petrobras, put oil and gas suppliers and industry associations in contact with potential Canadian partners. In meetings held in Halifax and Calgary, executives of Petrobras, of BNDES – National Economic and Social Development Bank and SINAVAL – National Shipbuilding and Repair Trade Entity, among others, became familiar with Canadian products and services, and laid out some of Brazil’s most urgent needs.
The target is to by 2020 reach a production capacity of 1.8 million barrels per day in the pre-salt layer alone, the equivalent of Petrobras’ total production volume in 2006. “What we accomplished in 53 years, we intend to do with the pre-salt layer in 12. We must take into consideration that it took Petrobras 53 years to reach the 1.8 million barrels mark”, states José Sérgio Gabrielli, Petrobras’ president. According to the executive, if it intends to maximize the pre-salt potentialities, the company will have to invest approximately US$ 7 billion in each of the planned production systems.
High demand – Foreign participation will be essential. At the end of 2008, the Minister of Mines and Energy, Edson Lobão, said that Canadian groups, like organizations in China, Japan and the Arab Emirates, had offered financing to operate with the newly discovered reserves. Compared with other countries, oil and gas operations in Brazil are viewed as low-risk and high-return: economic and political stability, expected production gains and the dependence on public and private funds favor this situation. From 2009 to 2012, according to BNDES data, direct foreign investments (DFI) in the industry are expected to increase 46%, in comparison with the US$ 197 billion received between 2005 and 2008. Petrobras will cause a part of this increase, and will destine US$ 92 billion to oil activities until 2013. The project portfolio will warrant high demand for equipment, such as drilling rigs, pumps and oil pipelines.
“Our expertise in designing pipelines is focused on large companies, and we know Petrobras will build many oil pipelines, and that the company is open to foreign investment”, observes Michael J. Koski, the president of operations abroad of Canadian company Trow that has a subsidiary in Rio de Janeiro. Positive expectations result in a well-established partnership between the two countries. After all, it is in Canada that Petrobras purchases goods and services worth US$ 88.5 million – direct purchases from eight suppliers in Canada total US$ 63.2 million. “We offer services to prevent environmental risks in cases involving pipeline leaks. Brazil is a very important market, not only because it is the largest in Latin America, but also because of the concern about environmental preservation”, emphasizes Daniel Balo, a representative of the Conestoga-Rovers environmental consultancy.
The world’s third largest natural gas and eighth largest oil producer, Canada successfully realizes highly complex extraction and distribution operations. In recent years, it experienced a situation similar to that of Brazil, with the discovery of bituminous sand reserves, previously considered an expensive and hardly feasible option – in 25 years, according to CERI – Canadian Energy Research Institute, this commodity is expected to generate US$ 1.8 trillion of the Canadian GDP. This non-conventional source of energy required technological development and practical solutions for environmental issues, such as they are expected to occur with the pre-salt layer.
In Brazil, concession and exploration contracts signed by ANP – National Oil, Natural Gas and Biofuel Agency, in recent years have included a local content clause, which obliges companies that win a bidding to commit to purchasing goods and services from Brazilian suppliers, considering their price, term and quality conditions. “When we sign a contract with Petrobras, the ANP imposes the condition whereby 70% of a platform to be built must use equipment and services supplied by Brazilian companies, but we already selected Canadian company Timberland for anchor chain systems for the platforms P51 and P56 because it offers a more competitive product in comparison with products offered in the domestic market”, explains Michel Alber, purchasing manager at Technip, a company specializing in the construction of oil platforms.
To adapt to this clause, Filtermaster, that supplies re-utilizable magnetic filters to avoid ferrous contamination, plans to inaugurate its own plant in Brazil, to sell “local content”, increasing its prospects for participating in the concessions. “We have been in Brazil for three years so now we intend to produce locally, with a reduction in prices and better conditions to fight for contracts. We will invest because the Brazilian economy, along with that of China and India, will have an important participation in the world economy in the next 20 years”, assesses Gerald Herman, the company’s director. For him, apart from the favorable climate conditions in coastal regions, Petrobras is run not as a public organization, but rather as a private company with defined objectives.
These characteristics have attracted even Canadian companies that never before did business locally, but that now want to open space in the market. Such is the case of Canadian company Entec. “We offer consulting services and technical analyses for pipeline constructions in difficult areas, for instance, to bridge rivers, to cross mountains or even to link pipelines at sea or on land. Many sectors in Brazil need specific technologies”, assesses Grant Jameson, the company’s president.
Partitioning model – In turn, Rayco Wylie, a company offering safety systems for cranes, sees an opportunity to expand its activities in the country. “The oil and gas industry will increasingly require more infrastructure, and safety requirements too will increase. According to current rules, we have to built our equipment with Brazilian components and assemble it here. Our plans are to build a plant, which is a project that may materialize in three years”, assures Marcelo Vidal, the company’s sales representative.
Notwithstanding the prevailing optimism, the rules to explore the new reserves have as yet not been totally defined. ANP will realize the bidding process and perform geological studies in the pre-salt area, as well as define the exploration block areas and their exploration according to recommendations of CNPE – National Energy Policy Council. “The pre-salt proposals did not subtract any of ANP’s attributions”, points out Haroldo Lima, the agency’s director-general. The legislative bills under analysis propose a partitioning model – which is quite common in countries with vast reserves and low operational risk – by which participants are compensated only if a discovery is considered commercially viable. Cost offsetting is done with oil (called cost-oil), and the surplus (profit oil) is divided among the companies and the Federal Union.
Petrobras will always operate the wells and will have a guaranteed 30% minimum share, while also participating in biddings to increase its initial quota. In the Gulf of Mexico, 97% of the operators have quotas of more than 30%, whereas in Africa, where the production capacity has been increasing in recent years, this percentage is 85%. In Brazilian biddings, the winning consortiums will be the ones that offer the Federal Union the largest surplus oil share. For the domestic market, the rules under analysis favor the participation of Brazilian companies in the supply of products and services.
Foreign investors, however, will need to find ways to adapt to this bidding process or will have to invest in local production. In the case of Canada, the diversification of suppliers – in total, the country has about 30,000 companies in the industry -, the technological development in the exploration of difficult areas and the specialization of its small and medium-size companies may count points in the fight over the pre-salt prospects.
Translation to English: BeKom Comunicação Internacional
Increase in capacity
Brazil has strengthened its position among the world’s largest oil producers. Until 2030, consumption is expected to increase in the country from 1.9 million to 3 million barrels per day. The pre-salt layer will supply a part of this demand. See the industry’s most recent data below:
Números superlativos do pré-sal The pre-salt layer’s superlative numbers
kilometer off the coast extension
thousand square kilometers
billion estimated barrels of oil
1,000 to 2,000 meters layer thickness