Inside Oil & Gas Brazil report 2014

2014

INSIDERS EYE: ON BUSINESS & NAVIGATING BRAZIL’S OG WATERS PAGE 16

PETROBRAS ADVANCING PRODUCTION MILESTONES 2023/14 PAGE 18

INTERVIEW WITH: ANTONIO AUGUST QUEIROZ GALVAO,CHAIRMAN QUEIROZGALVAO GROUP PAGE 34

PRESALT PULL: TOTAL/ REPSOL&SINOPEC PAGE14

PETROBRAS & THE MAN BEHIND THE NUMBERS ALMIR BARBASSA , CFO PETROBRAS ON INVESTING INTO THE FUTURE PAGE 24

BRAZIL

BRAZIL JUNE 2014

Acknowledgements:

Special thanks to

Almir Barbassa, CFO, Petrobras, Milton Costa Filho & Joao Carlos

de Luca from IBP, Antonio Augusto de Queiroz Galvao from Queiroz Galvao, Denis Palluat de Besset from Total and Mr. Jose Maria

Moreno from Repsol Sinopec for their contribution and support as

well as to all the companies involved in the production of this report.

3

BRAZIL JUNE 2014

This sponsored supplement was produced by Focus Reports.

Publisher: Ines NandinProject Director: Chiraz BensemmaneEditorial Coordinator: Fraser Wallace

For exclusive interviews and more info, plus log onto www.energyboardroom.com or write to [email protected].

CopyrightAll rights reserved. No part of this publication maybe reproduced in any form or by any means, whether electronic, mechanical or otherwise including photocopying, recording or any information storage or retrieval system without prior written consent of Focus Reports.While every attempt is made to ensure the accuracy of the information contained in this report, neither Focus Reports nor the authors accept any liabilities for errors and omissions. Opinions expressed in this report are not necessarily those of the authors.

CONTENTS

6 BRAZIL, FROM RISK, REWARD

7 EXPOSED TO THE EYES OF THE WORLD

9 SBM OFFSHORE; DARING TO SUCCEED

10 TECH-FIX

11 AKER SOLUTIONS; BRAZILIAN BULLS-EYE

12 GE OIL AND GAS; PROFESSIONALISM PRECEDES PROFIT

13 ADVANCING EVOLUTION

14 PRESALT PULL

14 GAS, AN OPPORTUNITY WITH SPARK

16 KEY CONSIDERATIONS IN BRAZIL

17 HUNGRY HUNTERS

17 TRUNK ROUTES

18 NAVIGATING THE REGULATORY FRAMEWORK

18 PRODUCTION PUSHES SKYWARDS FOR PETROBRAS

20 TEAMWORK MAKES THE DREAM WORK

21 EXPANSIVE AMBITION

4

BRAZIL JUNE 2014

22 INTERVIEW WITH

João Carlos de Luca & Milton Costa, President & Executive Secretary - IBP

24 INTERVIEW WITH

Almir Barbassa, CFO - Petrobras

26 INTERVIEW WITH

Renato Bertani, CEO - Barra Energia

28 INTERVIEW WITH

Marcos Assayag, former Executive Manager - CENPES

30 INTERVIEW WITH

Denis Palluat de Besset, Managing Director - Total E&P Brazil

32 INTERVIEW WITH

José Maria Moreno, CEO - Repsol Sinopec

34 INTERVIEW WITH

Antonio Augusto de Queiroz Galvao, Chairman - Queiroz Galvao

36 INTERVIEW WITH

Nilo Chagas de Azambuja Filho, CEO - HRT

38 INTERVIEW WITH

Adriano Novitsky, CEO Brazil Division subsea, Jose Jorge Araujo- SVP Latin America - Technip

40 INTERVIEW WITH

Nelson Leite, President - FMC Technologies do Brasil

42 INTERVIEW WITH

Stephane Dezaunay, Country Manager - PGS

44 INTERVIEW WITH

Luiz Braga, Ph.D, VP - Geomarket Director, Latin America - CGG

46 INTERVIEW WITH

Ronaldo M. De Oliveira, Commercial Director - CBO

48 INTERVIEW WITH

João Ferraz, CEO - Sete Brasil

50 INTERVIEW WITH

Renata Pereira, Executive Director - BRASCO

INTERVIEWS

5

BRAZIL JUNE 2014

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Rio de Janeiro, Brazil, and summer is displaying the city

in her full glory. The city’s golden beaches slide into

the sea; the warm waters offer cooling respite from

the heat to locals and tourists spending time and money. Under-

neath the waters of the South Atlantic however, it is not golden

beaches offering the entire country an economic opportunity but

black gold: hydrocarbon resources that offer tremendous pros-

pects for growth in Latin America’s largest country.

Such confi dence saw the state controlled hegemon of Brazil’s

oil and gas market, Petroleo Brasileiro Petrobras SA, or Petro-

bras, detail an ambitious plan of investment expending USD

236.7 billion until the end of 2017 to exploit offshore resources.

BRAZILfrom risk,reward

Photo courtesy of Ines Nandin

March 2014 oil & gas financial journal | www.ogfj.com | energyboardroom.com 87

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BRAZIL JUNE 201488 energyboardroom.com | www.ogfj.com | oil & gas financial journal March 2014

Despite such a significant figure, claims that Bra-

zil has been overpromising and under delivering

remain. 2013 was a year of frenetic energy for the

Brazilian oil and gas industry: May 14th saw Brazil’s

first auction for oil and gas rights for five years,

which raised 2.82 billion reais (USD 1.4-billion). This

was followed by the presalt auction of October

21st, where Petrobras, Shell, Total, China National

Petroleum Corporation (CNPC) and China National

Offshore Oil Corporation (CNOOC) paid 15 billion

reais (USD 6.88 billion) for the rights to the Libra

field. New discoveries, too, underlined the huge

opportunity that exists in Brazil: at the end of Sep-

tember, the SEAL-11 field was touted by Petrobras

and IBV Brazil (50-50 joint venture between India's

Bharat Petroleum Corp (BPCL) and Videocon Indus-

tries Ltd) as likely to contain over a billion barrels

of oil, and in mid-November the ANP (National

Petroleum Agency) stated that the Franco field off

Brazil’s southeastern coast could contain even more

oil than the Libra reserve.

These promises are tempered by the fact that

OGX (now Óleo e Gás Participações SA) announced

that its Tubarão Azul operations were a commer-

cial calamity in July. Almost three months later,

OGX filed for bankruptcy. In November 2013, HRT,

another indigenous Brazilian enterprise, had drilled

14 wells: failing to obtain oil from any.

Petrobas’ PRODESIN divestment program, sell-

ing assets such as the entirety of Petrobras’ wholly owned subsidiary

Petrobras Energia Peru (PEP) to China National Petroleum Corporation

(CNPC) for USD 2.6 billion to fund domestic development, has also

run into trouble. In March 2013, Petrobras lowered the predicted value

of asset sales by almost 40 percent to USD 9 billion from USD14.8 bil-

lion. Stories like this fuel the perception of risk in the Brazilian market.

Many commenters display morbid glee at indications of tumult

affecting Brazil, particularly troubles affecting Petrobras. This schaden-

freude, however, ignores socio-economic imperatives surrounding the

oil and gas industry. Brazilian policy-makers acknowledge the impor-

tance of this opportunity and that it represents a golden path to eco-

nomic development. Despite undoubted risks to entering the Brazilian

market, the rewards available could be transformative for any business

savvy enough to pilot a route to success.

Brazilian businessmen remain confident about opportunities in Bra-

zil. “There is no question about the availability of the technology to

drill and produce the pre-salt,” says Renato Bertani, CEO of Barra

Energia. Milton Costa, executive secretary of the Brazilian Petroleum

Gas and Biofuels Institute (IBP) agrees, stating: ‘I truly believe that Bra-

zil is one of the best countries in the world to invest today given the

size of the country and its population, the pace of its economic devel-

opment, and the size of the opportunities both offshore and onshore.’

2014 will be the second year of Magda Chambriard’s leadership of

the ANP and Maria das Graças Foster’s leadership of Petrobras. The

latter has focused on reducing costs and increasing the capabilities of

Brazil’s operating giant, mobilizing for a big push to production. Almir

Barbassa, CFO of Petrobras states: ‘There are few companies in the

world today that invest more in the future than Petrobras.’ Chambri-

ard has echoed this, calling for investment to be focused on develop-

ing productive capabilities. This investment and effort will profoundly

shape the future of Petrobras and Brazil. In future, companies operat-

ing here need to balance between avoiding risk and pursuing rewards

as Brazil’s oil and gas industry matures and consolidates.

ExposEd to thE EyEs of thE worldPetrobras effectively has an open run at goal, the

government in 2010 guaranteeing them preferen-

tial access to presalt resources: only Petrobras is

the sole operator in this domain- a fact which is not

uncontroversial in Brazil. João de Luca, president of

the IBP says ‘IBP has been opposed to the single

operatorship for Petrobras in the pre-salt since the

government first suggested it. In our opinion it is

not good either for Petrobras or for the rest of the Brazilian industry.’

Petrobras’ development plan for presalt gives exploration and pro-

duction 62.3 percent of investment as the company seeks production

of 5.2 million boe/day by 2020. Brazil’s state controlled oil company is

going all in, as its unwavering focus and levels of debt indicate.

Domestic fuel price restrictions continue straining the giant’s rev-

enues whose shares recently fell when the Brazilian government failed

to produce a plan for bringing fuel prices to market parity, albeit con-

currently permitting a limited increase to reduce pressure on Petro-

bras. On January 7th 2014, the state controlled company sold USD 5

Renato Bertani, CEO & President, Barra Energia

Milton Costa Filho , secretary general, IBP, Instituto Brasileiro de Petróleo, Gás e Biocombustíveis

João Carlos de Lucas, president, IBP, Instituto Brasileiro de Petróleo, Gás e Biocombustíveis

Amir Barbassa, CFO, Petrobras

Petrobras headquarters, Photo courtesy of Ines Nandin


















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8

BRAZIL JUNE 2014March 2014 oil & gas financial journal | www.ogfj.com | energyboardroom.com 89

billion in bonds to help finance offshore develop-

ment over the coming five years. Accordingly, the

company’s debt increased approximately 206 per-

cent between 2006 and 2012.

Worryingly, the rating agency Moody's down-

graded the debt ratings of Petrobras to Baa1 from

A3 reflecting the ‘high leverage of state’ (a measure

considering debt and equity) and Petrobras stocks

fell from USD 17.9 to USD 12.5 per share between

November 18th 2013 and January 22nd 2014.

Brazil asks a great deal from its hydrocarbon industries, seeking

jobs and to boost development using its oil resources. Some of these

regulations are on occasion considered stifling, such as local content

requirements (LCRs). Another common complaint is the limited avail-

ability of skilled, technical labor.

Total is a prominent international oil company (IOC) working in

Brazil with bold ambitions for growth. Denis Palluat de Besset, man-

aging director of Total E&P Brazil, argues government policy could

be improved. “At the moment, LCR is a punitive system; it can kill

a project and means that companies may not engage, afraid of the

risks doing so would entail,” he says. “An incentive system is wiser,

encouraging investment in the areas of the sectors which are provid-

ing for the needs of companies such as Total. This

would make the system more beneficial for contrac-

tors, the whole supply chain and the government.”

Another significant cost is procuring suitable

labor: Brazil’s oil and gas sector hungers for experi-

ence and technical skills. Frequently businesses deal

with this themselves, setting up training schemes

where possible.

These difficulties are felt by indigenous and for-

eign companies. “Three years ago, the Norwegian Trade Minister vis-

ited Brazil,” remembers Hans Ellingsen, general manager of Olympic

Maritima, a company aiming to build up its fleet to a minimum of ten

vessels by 2017 from four in October 2013. “It was the biggest trade

delegation ever from Norway,” he continues. “It was a big show that

led a lot of Norwegian suppliers that had never set foot in Brazil to

believe that they would get rich in a heartbeat here. That is not how it

works. A friend of mine once said, ‘Brazil is not for beginners.’”

Ellingsen, from Norway, has worked in Brazil for over 20 years and

is familiar with local challenges. He predicts the future of the market:

“Petrobras today is responsible for 93 percent of the vessel contracts.

The latest data indicates this will drop to 70 percent in the coming five

years, as IOCs grow their operations.”

Hans Falnes Ellingsen, general manager, Olympic Brazil

Denis Palluat de Besset, managing director, Total E&P do Brasil ltds

FocPGS_OGFJ_1403 1 2/21/14 4:16 PM

9


DARING TO SUCCEED! PhiliPPe levy, country manager, SBm offShore talkS aBout eStaBliShing hiS comPany in Brazil:

SBM turned local content into something positive. Levy ensured that his local

suppliers were fully equipped and trained to provide for SBM’s needs.

Whilst working on the P-57 platform for Petrobras, Levy states: “I asked

them [the local suppliers] to dedicate 20-25 percent of their turnover to us. The

question I got was if it would be sustainable.” Levy adds that frequently these

suppliers had only worked for Petrobras. However, he persisted. “I told them

that it would be sustainable, because SBM believed that local content would

start to grow and will stay and remain stable.

“P-57 was a big success. The SBM supplier network grew, and we started

to create alliances. SBM even stimulated foreign companies to enter Brazil and forge alliances with

Brazilian manufacturers to be the preferred partner to SBM, because Brazil had the capacity, but not

the engineering capabilities to manufacture.”

“Of course they took a risk by doing this.” Levy, however, feels the solid manufacturing base

created was worth this risk. This supply chain which now provided for the FPSOs Paraty and Ihlabela-

P-57 has paved the way for further works. Levy elucidates what developing this supply chain means

for SBM: “With the Brasa yard…we can easily execute projects at 65 percent [LCR]).”

Levy concludes, stating that SBM had to convince the supply chain, demonstrate success, and

capitalize on to create a reliable reputation for SBM in Brazil.

SBM commenced a joint venture partnership with Naval Ventures Corp in the Brasa Shipyard,

which started in 2011. The Brasa Yard is located in Niteroi and is a 65.000m2 module yard capable of

assembling up to 12 FPSO modules at once. ‘Owning the yard, the crane barge, and the quay side

facilitates a very smooth execution of the project for SBM. These three tools combined ensure that

we control our own destiny’ states Levy.

The decision to invest in this yard has turned SBM into an important, local player in the Brazilian

shipbuilding industry.

FocOly_OGFJ_1403 1 2/21/14 4:22 PM

FPSO Cidade de Paraty, Photo courtesy of SBM

Philippe Levy, country manager, SBM Offshore Brazil

10


“There is so much to develop in a short

period of time that is hard to believe that

the global supply chain will be able to cope,”

says Paulo Cesar Martins, president of Abe-

spetro, an organization that represents 51

service companies from various segments, all

key players in the Brazilian oil & gas indus-

try. “We are not only talking about massive

quantities of several different critical compo-

nents, but also with very high specs.”

“If you take the example of Petrobras’

portfolio of prospects, detailed in their lat-

est five year business plan, even considering

its experience and leading technology, it is

impossible not to be concerned over their

capacity to take on the load. This brings

uncertainty to the market.”

Decision makers face a dilemma between

potential rewards and the risk in obtaining

them. Total is one, illustrated by the compa-

ny’s late decision to join the Libra Consortium.

The recent October 2013 auction, sell-

ing the rights to Brazil’s Libra field in the

Santos Basin, is a prime demonstration of

the rewards awaiting persistent companies.

The field has an estimated recoverable oil

volumes of 8-12 billion boe. Denis de Bes-

set, managing director of Total E&P in Brazil

remarks: “I am confident that those compa-

nies who are absent from Libra will be the

ones who most regret the outcome of the

Libra auction.”

The Libra block was discovered approxi-

mately 105 miles offshore from Rio de

Janeiro in the Santos Basin. The field could

generate a trillion USD in public revenue and

is totemic of the opportunities available from

Brazil’s pre salt resources- its size and volume

mean that the reserve is vital to Petrobras’

hopes of producing 4.2 million bpd by 2020,

double its current production rate.

Libra became a possibility for Total

because, de Besset attests, the final agree-

ment saw parties split risks of production and

rewards from the venture. Total was pleased

excessive political interference now seems

unlikely. Shell, CNPC and CNOOC joined

Petrobras in commercial activities on this

field, indicating their agreement that Brazil’s

promise outweighs possible hazards.

tEch-fix“These criticisms of Petrobras, as well as issues including the downfall of OGX

and HRT’s momentary wobbles have created the prevailing feeling amongst

investors that Brazil currently represents a risky business venture,” says John

Riggs, managing director at Intermoor do Brasil, a company providing moor-

ing services including engineering and maintenance. Intermoor has taken on

some particularly challenging projects, including installing drilling and produc-

tion conductors on the Papa Terra platform. Mr Riggs commends on this say-

ing ‘It was a very tight technical spec with strict tolerances for the welded pipe,

the conductor position and inclination, etc., which were really beyond what is

normal in the industry.”

However, whilst Riggs does speak of risk in Brazil, far from discouraging

investment, Riggs argues that now is the time to act- confirming his confi-

dence that investing in Brazil now will see solid returns, he states: “Now is

the time to invest looking at the developments in the North East, because

in three years the market most likely will turn again. Investors will need to

remain alert to the fact that this is a window that will close: prices will rise as

Brazil demonstrates it is a country fully capable of developing [its] pre-salt

resources.” Riggs’ opinion is echoed across the industry.

Iain Wilkinson, socio-director at Petrolink, an information and communications technology

company points out that: “Brazilian executives will often analyze information differently to

British executives; this has a great deal to do with Brazilian analysis of risk - there is a dif-

ferent feel here for how far a business can stretch - which does translate into business strat-

egy.” Wilkinson feels that Brazilians better seize opportunities than companies from more

risk-averse backgrounds, by acting early and decisively.

The technical challenges in Brazil are seeing the arrival of highly sophisticated, technically

adept companies gathering to capitalize on Brazil’s subsea wealth, despite the risks described.

Dr.Ian Wilkinson, socio-diretor, Petrolink

John Riggs, managing director, Intermoor do Brasil

Fig. 1: LOCATION OF LIBRA FIELD IN BRAZILIAN OFFSHORE BASINS

Areashown

SOUTHAMERICA

0

0

300

186

Km

Miles

SãoPaulo

Santos

Rio deJaneiro

Libra�eld

Camposbasin

AtlanticOcean

Known pré-sal area

EspíritoSantobasin

BRAZIL

Santosbasin

1,000

m

2,00

0 m

11


This technology helps the companies reduce risk. It is unlikely that

Petrobras’ aim of producing an additional two million barrels per day

by 2020 would be accomplished without using new

technologies on mature fields. Almir Mr Barbassa

highlights that Petrobras’ strategy is one with

finesse: “Operational efficiency is tied to our pro-

ducing fields, but we have offshore fields that have

been producing for thirty years, so the equipment

is no longer new and has to be improved in ways.

We did most of this in the last two years, essentially

in the second half of last year and the first half of

this year. Now we are seeing production responding.” Petrobras is

targeting both new resources and ensuring productivity from existing

assets remains high with technologies capable of delivering greater

results than previously.

Kongsberg Oil & Gas Technologies (KOGT), is another company

seeking to bring advanced solutions to the Brazilian market as an

established subsea EPC contractor and developer of information

technology solutions for drilling operations. The company’s general

manager, Håkon Ward, states: ‘The clear development trend in [the

IT systems] market at the moment is towards real time data…and

monitoring of operations.’

‘[A] facility KOGT offers which is of particular use to the offshore

Brazilian market is through our K-Spice and Ledaflow software sys-

BRAZILIAN BULLS-EYE luiS araujo, regional manager aker SolutionS diScuSSeS

the value of Brazil to hiS comPany:

Aker Solutions has been in Brazil for about 30

years, but only in the 1990s entered the oil and gas

market. We signed our first contract with Petrobras

in 1994, and since then have delivered around 200

subsea christmas trees to Petrobras. We have be-

come a key supplier for Petrobras, particularly in

subsea equipment.

During the 2011 crisis we realized we needed

to tackle this market head on, considering the im-

portance of Petrobras and Brazil to our global business. In an effort to

do so, we engaged with Petrobras at all levels from operational level to

the senior representatives and together we developed a detailed plan

for the future. We jointly convinced our board of the need to invest

more in Brazil.

Hakon Ward, general manager, Kongsberg Oil & Gas Technologies

Luis Araujo, EVP & president, Aker Solutions Brazil

FocInt_OGFJ_1403 1 2/21/14 4:31 PM

12


tems. Together they are an integrated solution,

delivering process simulation and multi-phase

flow simulations. KOGT is the sole provider of

this holistic system. By having these tools, clients

have access to a far more detailed understanding

of the whole process of production, from drill-bit

to wellhead. …these services can assist Petrobras

or other players in maximizing the extraction of

oil from mature fields… in a way which will secure

maximum returns…The need for this facility in Bra-

zil is acute.’

“Technology is very important,” agrees Miguel

Gradin, president of Gran Energia, a company

focused on oil & gas services, intermodal logistics,

and project management. “Petrobras’ aim of pro-

ducing an additional two million barrels per day by

2020 cannot be accomplished without using new

technologies on mature fields, and the support of

service companies.”

For investors looking to Brazil, research and

development is vital to reducing perceptions of

risk. Asked about the importance of further invest-

ment in R&D, Marcos Isaac Assayag, formerly exec-

utive manager of Petrobras’ R&D Center, Centro

de Pesquisas Leopoldo Américo Miguez de Mello

(CENPES) says, “Continuing to invest in R&D on

top of what is done already is a must. Certainly we

can create a lot more value by optimizing drilling

operations, so that we could drill faster, cheaper

and safer, or by improving recovery factors so that

we could extract, with the same number of wells,

more oil from the reservoir.”

The R&D investment of Petrobras was around

USD 160 million per year in 2001-2003. This

increased six fold in 2004-2008, reaching a level

of USD 900 million. From USD 3.1 billion invested

across the period 2009-2011, 47% went to exploration and produc-

tion. Petrobras is prioritizing research and development in order to

gain further profit.

Petrobras is aware that new technology offers a more secure path

to profit. “Despite being very cost-aware given the investment the

pre-salt developments require, Petrobras has always been very keen

on using new technology,’ states Stephan Dezaunay, country man-

ager for PGS. “This focus on using better technology to increase

production has paid off. In September 2013, pre-salt production of

329,000 barrels per day (bpd) has increased eight fold from the aver-

age pre-salt production in 2010 of 42,000 bpd.”

Many companies are investing in technology to augment their busi-

ness. Dezaunay describes the motivations for PGS to invest in more

advanced capabilities: caused by the “lack of bids [until 2013], PGS…

PROfESSIONALISm PRECEDES PROfITjoao geraldo ferreira, ceo of ge oil & gaS for latin

america talkS aBout the qualitieS giving hiS comPany a

comPetitive edge:

GE has built a high caliber professional structure in

Brazil where good business practices are based on

high quality people. The best gas turbine and the

highest specification christmas trees in the world

were designed by people who were empowered to

take forward these technical issues. At GE, we seek

to create the environment for empowerment.

Any company must have a structure optimally

designed to achieve key goals and ambitions. Staff

with an accurate and in-depth understanding of the

Brazilian market are important and the right, high quality people who

will assist a company achieving its goals. Such an understanding will al-

low the business to react better to government regulation and design

products and services optimally customized to the local environment.

Lastly, I would say that it is important to ensure one listens. Never as-

sume a complete understanding of any issue. Acceptance of other views

will ensure a more durable and better thought out plan for success.

FocABS_OGFJ_1403 1 2/21/14 4:18 PM

João Geraldo Ferreira, president Latin America, GE Oil and Gas

Jose Carlos Ferreira, vice president South American region, ABS

Stephane Dezaunay, managing Director, PGS Brazil

Miguel Gradin, president, Gran Energia

Marcos Isaac Assayag, former executive manager, Cenpes

13


felt we needed to diversify and invest in a

technology center to enable us to work on

reservoir and monitoring services.

“Companies in Brazil are actually keen to

use new techniques. PGS has ventured into

new ways of executing seismic” continues

Dezaunay. He summarizes: ‘PGS is continu-

ously challenging conventional industry wis-

dom and merits, both globally and in Brazil.’

Petrobras’ and the wider Brazilian oil and

gas industry’s production increase is being

facilitated by ever more offshore infrastruc-

ture and equipment coming to Brazil, each

adding to production capabilities. ABS, a

market leader in providing marine and off-

shore classification services, is one company

eager to expand operations offshore. José

Carlos Ferreira, vice president, South Ameri-

can Region for ABS states that: “We did not

get to where we are by chance. We became

the industry leader through lots of hard work

and by leveraging our international network

for support.” Ferreira continues: “consider-

ing the innovative nature of our industry,

we keep abreast of the latest technologies

and developments. The offshore industry

certainly moves with great speed, and if we

intend to regulate, then we have to keep up

with the pace. To this end, we have enacted

two initiatives in Brazil: the establishment of

an Offshore Technology Center as well as an

Offshore Technical Committee.”

This increase in capacity is underlined by

the fact that in October 2013, cumulative

extraction by Petrobras from presalt deposits

reached 250 million boe.

A grand total such as this is perhaps the

reason Almir Barbassa, states: “It takes a

period of heavy work before we start pro-

ducing oil and generate the cash flow.”

Describing steps forward from Petrobras he

says: “we have to optimally capitalize on the

opportunities we have in front of us, such as

the pre-salt fields. Already today we are pro-

ducing more than 300.000 bpd… Reaching

such output in six years’ time is faster than

many other countries.”

“Petrobras is installing more than thirty oil

rigs between 2013 and 2018.” Petrobras has

also started the development of 20 FPSOs,

each costing 1.5-1.8 billion USD. Barbassa highlights: “Every time an FPSO comes online, the pro-

duction curve receives a boost. In 2017, we will produce 750.000 bpd more than today – all oil.”

The IEA agrees Brazil’s future as a large-scale oil producer is likely. In November 2013,

the IEA predicted Brazil’s production tripling by 2035, to 6 million bpd. The IEA considers a

domestic focus on energy efficiency is key to Brazil meeting its export targets.

Brazil’s government has allowed Petrobras to increase in fuel prices at the pump to ease

pressure on the giant. There are indications price restrictions could ease again as early as

March 2014.

Clearly, Brazil’s prosperity is linked to the development of offshore pre-salt resources. Many

key skills will have to come to Brazil from abroad, and companies must consider risk and

potential profit before coming here. Brazil is a market requiring shrewd planning prior to

entry. However the more that companies can offer Brazil, the more Brazil offers commercially.

One certainty exists- this country will be relentless in its pursuit of realizing the potential of

its offshore energy opportunity.

Fig. 2: NATIONAL PETROLEUM AGENCY: BULLETIN OF PRODUCTIONOF PETROL AND NATURAL GAS, SEPTEMBER 2012-13

Pet

role

um p

rod

ucti

on,

tho

usan

d b

/day

2.2Oil Gas condensate

2.1

2.0

1.9

1.8

1.7

1.6

1.5 Sept. Oct. Nov.2012 2013

Dec. Jan. Feb. Mar. Apr. May Jun. July Aug. Sept.

Maintenance in the port of Agra, Photo courtesy of Luiz Baltar

ADVANCING EVOLUTIONScientists exploring the New Hebrides trench in the Pacific Ocean recently gained further understanding of the inhabitants of the deepwater environment by sending an ROV (remotely operated vehicle) the 7,000m distance to the sea floor. The creatures that encountered were similar to animals adapted to other deepwater trenches, but at the same time appeared in different numbers and in different forms: they were subtly adapted to this local environment. A certain type of eel was particularly abundant because the area is especially nutrient poor; this type of eel is able to cope with infrequent meals, scavenged from the sea floor. Unlike the animals of the New Hebrides trench, Brazilian operators do not currently face a lack of commercial sustenance, but there is still the need to ensure one’s company is best suited to dealing with the local business environment.

14

BRAZIL JUNE 201462 enerGybOardrOOm.cOm | www.OGFJ.cOm | Oil & Gas Financial JOurnal June 2014

Speeding up integration of new ideas and con-

cepts into the Brazilian oil and gas industry is one

way that policy makers are expediting the industry

reshuffle that will allow best use of hydrocarbon re-

sources across the country. There is an imperative

to gain the skills that Brazilian industry can use to

ease access to resources. Lowering costs and in-

creasing capabilities must be married with the Bra-

zilian government’s desire to increase the capabili-

ties of local industries through use of local content

regulation (LCR).

This dual ambition creates both opportunity and

market turbulence, which can help or hinder com-

panies operating in Brazil to varying degrees.

Almir Barbassa, the CFO for Petrobras, details

the wealth flowing from equipment already in-

stalled: “The first FPSO at the Lula field is produc-

ing more than 100,000 bpd with four wells. The

production rate per well averages 25,000 bpd, al-

though the platform itself was built to receive six

producing wells. Two of them are idle because there is no room on

the FPSO due to the amazing productivity of the other wells.”

Barbassa also gives an idea of the success Petrobras has already

had from the pre-salt fields: “The success rate of the wells we drilled

in the pre-salt stands at 85 percent. We have a fleet of 40 new genera-

tion rigs able to drill in waters up to 2000m depth and a total of 69

floating rigs working for Petrobras.”

The CFO of Brazil’s national giant goes on to describe the current

opportunities that Brazil’s biggest operator, with 76 percent market

share, is taking advantage of: “Today we are working to develop the

existing fields. Petrobras is installing more than 30 oil rigs between

2013 and 2018. Most of the capex needed to build this equipment

has already been deployed – not only the USD 42 billion for the trans-

fer of rights, but the development of 20 FPSOs, each costing USD

1.5-1.8 billion. If we include the cost of adding wells to the FPSOs,

each module requires USD 5-6 billion before starting production. We

are paying for future production today.”

Barbassa estimates output of 4.2 million bpd, plus 1 million bpd in

gas equivalent by 2020.

The break-even figure for pre-salt production is USD 40-45 per

barrel of Brent crude, and with the price of oil currently over USD 100

per barrel, pre-salt fields have the capacity to be very lucrative for

Brazil and the oil and gas sector. Local and international companies

are eager to engage with this opportunity too.

Milton Costa, executive secretary of the Brazilian Petroleum Gas

and Biofuels Institute (IBP) also predicts much pre-salt activity. He

thinks that the first priority, however, must be reducing drilling costs:

“Drilling operations need to be further optimized. This is work in

progress. The pioneer wells in pre-salt cost up to USD 200-300 mil-

lion, but in Lula, Petrobras is now drilling for some USD 70-80 million,

less than three months from the start of operations.”

Brazil has been very lucky, as the pre-salt discoveries came just

after the techniques for deepwater extraction had been fully devel-

oped and learned in the Campos Basin.

Costa predicts significant challenges, though not insurmountable

ones: “Petrobras has a huge financial challenge in the next three to four

years. They have to put the last systems in the Cam-

pos Basin in production and add pre-salt projects.

When production goes up, they will start to generate

a lot of cash flow, and in four years will be in a very

good position to face all the other investments.”

Presalt PullThere is an increasing diversity and abundance of

businesses in the Brazilian oil and gas sector. As

Brazil’s industrial capabilities and capacities grow,

so more business niches appear. Understandably,

many companies have arrived to work accessing

the pre-salt resources, an opportunity on a scale

previously unfathomed. However, native efforts to

extract these resources cannot be forgotten either,

for of course Brazilians are eager to take their stake

of this prize.

Queiroz Galvao, an industrial conglomerate

originating in the state of Pernambuco, is an ex-

ample of a thriving Brazilian consortium. This enter-

prise is now consolidating its position with a swelling presence in the

Brazilian oil and gas sector.

“The company developed over the years to be one of the largest

groups in Brazil,” explains Antonio Augusto de Queiroz Galvao, chair-

man of Queiroz Galvao Oil and Gas. “At the moment, the business is

a diversified enterprise. Oil and gas is certainly one of our growth

drivers [and] in particular has grown significantly since 1980 through

the foundation of a then small onshore drilling company, Queiroz Gal-

vao Oil and Gas (QGOG).” Today, the company also operates off-

shore, and assets include 12 floating drilling units, eight operating,

and four under construction. “One, the Brava Star, will be completed

this year in Korea,” Galvao reveals. “It is a top-range and well

equipped unit built by Samsung.’

Queiroz Galvao also constructs vessels. Galvao details that this in-

cludes “FPSOs, as our business has a 37.5 percent stake in the South

Atlantic Shipyard. On this site, oil tankers and drilling rigs are being

fabricated.”

This diversification has also seen the group form and float Queiroz

Galvao Exploration and Production (QGEP) on the Sao Paulo stock

exchange. This company is the operator on block BS-4, in Atlanta

Field, at a depth of 1,500m.

Galvao is unequivocal about why Queiroz Galvao is present in Bra-

zil’s oil and gas sector: “The resources in the pre-salt fields are sub-

stantial, and production will increase rapidly; oil and gas resources

will undoubtedly be central to Brazil’s future success.”

Gas, an oPPortunity with sPark Pre-salt oil is one of a number of hydrocarbon sources that are attract-

ing companies from abroad to Brazil. Around 12 percent of activity in

Brazil’s oil and gas sector is onshore, attracting international compa-

nies and enabling the emergence of local players.

Geogas, a company providing compression and treatment of natu-

ral gas services is one local competitor.

Last year in Maranhão, Valerus Geogas, completed 12 miles of gas

pipelines feeding a gas treatment unit over 90,000m2 in area supply-

ing an electric power station, a milestone project for the company.

Milton Costa Filho, executive secretary, IBP

Amir Barbassa, CFO, Petrobras

Antonio Augusto de Queiroz Galvao, chairman, Queiroz Galvao Oil & Gas

Denis Palluat de Besset, General Manager, Total Exploration and Production Brazil

FocGTM_OGFJ_1406 1 5/27/14 1:12 PM

15

BRAZIL JUNE 2014

FocGTM_OGFJ_1406 1 5/27/14 1:12 PM

16


key considerations in Brazilthree Businessmen Give their thouGhts on considerations of imPort

in the Brazilian market.

1. peTRoBRAS’ FAvoR IS woRTh wondeRS

Luiz Braga; VP- Geomarket Director Latin America, CGG:

“CGG have been working in Brazil for a long time, and the approval of

Petrobras over that period has been a great tool in validating CGG’s

technology to the market.” He continues: “Petrobras are technology

leaders offshore; when they state that a technology is a useful one,

other operators listen. This has been of great use to CGG.”

Petrobras are the key player in Brazil (and are the seventh biggest

energy company in the world) with a 76 percent market share. They

dominate the market, and other participants in the Brazilian market

must learn to deal with them.

2. ThInk LIke A BRAZILIAn

Ian Wilkinson; Socio-Director, Petrolink:

“Brazil is not an easy market for overseas companies to enter; un-

derstanding the divergence between Brazil and Europe is essential

to succeed. The catch-all phrase of ‘cultural differences’ is key to

business strategy and prominent amongst all the issues which must

be considered by any business seeking to enter the Brazilian market.”

3. ATTAck RISkS FRom ALL SIdeS

Nilo Chagas de Azambuja Filho; Chief Technical Exploration Officer, HRT:

- by diversifying:

“Acquiring assets already producing is a costly but low-risk strategy,

particularly when compared to straight up exploration. The latter,

however, is far cheaper. Both exploration and production are important.

The Polvo field [HRT recently acquired a 60 percent stake] is part of

HRT’s diversification strategy and will allow HRT to move from being

a non-operating company to a fully-fledged operator.”

- by gaining partners:

“Having a partner is it allows more aggressive drilling of wells in the field, by reducing risk

and sharing further investment. This is towards the aim of increasing production.”

PRODUCTION OF OIL (BRAZIL)

Source: Petrobras

181653

Onshore

Mil bpd1980 1990 2000 2012 2017E 2020E

Shallow waterDeepwaterUltra deepwater

bpd = Barrels of oil per day E = Estimated

1,271

1,980

2,750

4,200

“The key for growing our client list is turnkey solutions

– complete from start to finish,” says Paulo Lopes, di-

rector of Valerus Geogas Consortium.

Valerus Geogas has attempted to finesse its pro-

duction and operational procedures. Lopes empha-

sizes efficiency: “Prefabrication is a specialty of Va-

lerus Geogas [meaning] one can attend to several

stages in the production process simultaneously, rath-

er than proceeding in a lumbering, slow manner.” Va-

lerus Geogas also seeks to develop local fabrication

facilities, typically sourcing more standardized equip-

ment in this manner. Only the core equipment then

requires transport, cutting down on the cost and time

taken up by logistics. “The company is capable of de-

livering a project in a third of the time that might be

expected from traditional approaches.”

Exterran is another commercial unit focused on Brazil’s gas re-

sources. Fernando Costa, country manager, highlights his company’s

value proposition: “Exterran highlights its technical expertise to the

wider market by providing services aimed at satisfying [clients’]

requirements.”

Costa describes how his company deals with Brazil’s large size

and the location of gas reserves: “We also ensure our services en-

gage with opportunities such as electricity production near locations

where gas is being extracted from the ground.” At the moment,

Brazil’s limited pipeline network means transmitting and selling elec-

tric power generated through gas combustion is key to creating a

market for gas, extracted far from pipeline networks.

Costa highlights that the Brazilian gas compression business is

immature, and many opportunities have yet to emerge as demand

grows: “the main units are the engines, compressors and coolers

and it is not possible to obtain these readily in Brazil. Demand at the

DEVON - Desenvolvimento do Campo de Polvo Plataforma de PolvoPolvo Oil Field- credit HRT

Nilo Chagas de Azambuja Filho, CEO, HRT Oil and Gas

Dr.Ian Wilkinson, socio-diretor, Petrolink

Luiz Braga, Vice President & Geomarket Director Latin America, CGG Brazil

17

BRAZIL JUNE 2014June 2014 Oil & Gas Financial JOurnal | www.OGFJ.cOm | enerGybOardrOOm.cOm 65

moment does not encourage traditional global producers to take up

manufacturing these units locally and for this reason, we must keep

importing this equipment.”

He displays confidence that the market will pro-

vide this demand: “Sao Paulo is a good example as

it has greatly expanded its gas network and so the

path to developing gas has a precedent. The po-

tential for this market is huge because Brazil’s gas

resources are growing.”

Lopes cites one reason for this growth: ‘“On-

shore concessions are being granted which is in-

creasing the pace of operations across the

country.”

hunGry huntersFollowing the first block auctions in five years, and the issuing of con-

cessions, opportunities have also increased for companies searching

for Brazil’s hydrocarbon resources, both onshore and offshore.

An innovative, native company with a unique product, Oil Finder

provides remote software solutions allowing clients to locate seafloor

sources of oil from satellite imaging of seeps (natural or otherwise) on

the surface. In a ‘competitive test run’ held in cooperation with Petro-

bras, areas indicated by Oil Finder to have oil resources had a 65

percent chance of having traces of petroleum chemicals in the sea-

bed compared to 25 percent in areas which oil finder did not indicate

a ‘find’ was likely.

Manlio Mano, executive director of Oil Finder,

summarizes: “Oil Finders’ technological advantage

will allow companies to speed up locating oil,

meaning production will happen faster.”

More traditional survey companies are capital-

izing on opportunities arising following the 11th

and 12th rounds of auctions for concessions in the

Brazilian market too.

CGG, an integrated geoscience company pro-

viding leading geological, geophysical and reser-

voir capabilities is headed in Brazil by Luiz Braga, VP- Geomarket Di-

rector Latin America. He states: “Two of the main reasons for CGG’s

success following 2013’s bidding rounds were the company’s technol-

ogy and strategy for advancing the process of delivering results to

clients.”

Braga illustrates CGG’s applicability offshore: “In offshore, CGG is

pioneering new technologies as well, clearly with Brazil’s significant

focus on this area for new development, companies such as CGG

must pay attention to this sector. Ensuring operators are able to fully

understand their wells as production is ongoing will need a degree of

emphasis, and CGG seeks to address this requirement.” CGG has

reduced its own risk by proactively securing a contract backlog

through 2014 and new auctions are expected in 2015.

Risk avoidance not only drives CGG’s strategies, but also that of

the wider surveying industry and multi-client survey in Brazil has be-

come the norm as the operator transfers risk to the surveying party.

trunk routesOperators demand countless services, from surveying, to delivery of

parts and equipment required to sustain consistent operation - down-

time is lost revenue. Renata Pereira, executive di-

rector at BRASCO, a logistical onshore and off-

shore support company states: “[BRASCO] is

positioning itself to pick up the greatest market

share from the 11th round of auctions. It is a man-

ner of business drive, and having the proper com-

petencies to deal with customer demands as they

arise.”

Pereira states the logistics industry is central to

the growth of Brazil’s community of businesses:

“Efficient transport over longer distances needs to

become the norm.” She concludes that truly coor-

dinated supply chains, from site of production to

point of use are vital for Brazil’s ambition.

Calixto Deberaldini, country manager of GTM

do Brazil, a leader in Latin America in the distribu-

tion of chemical inputs, raw materials, and provider

of logistics services, sees opportunity in supplying

the Brazilian market: “Handling and importation

costs in Brazil are higher, freight rates are pushed up by poor road

infrastructure.” While many would view this as a disadvantage, De-

beraldini highlights that GTM uses experience and technical capabili-

ties to ameliorate these further costs.

GTM is a recent entrant to Brazil, and Deberaldini articulates the

company’s strategy to seize market share: “GTM has so far intro-

Paulo Lopes, director, Valerus Geogas Consortium

Manlio Mano, executive director, Oil Finder

Calixto Deberaldini, country manager, GTM do Brasil

Renata Pereira, executive director, BRASCO Logistics Offshore

FocVal_OGFJ_1406 1 5/21/14 3:26 PM

18


duced a limited number, between five and ten products to Brazil to

ensure that these gain a solid reputation and a respectable market

share within the E&P sector. These products are used in drilling, ce-

menting and well stimulation operations.” He predicts future success

for GTM: “GTM expects to shift 50,000 tons of material in Brazil by

2015. The focus on international transport and high volume capacities

means GTM is able to be highly competitive across its diverse prod-

uct portfolio.”

GTM achieves this focus on high volume transit through its sister

company, Panachem, based in Houston which aims to connect GTM

to suppliers across the world, ensuring that GTM has access to the

lowest prices in the market for transport. This a core strategy for GTM

which allows the company to mitigate the high cost caused by the

poor quality of infrastructure and actual size of Brazil.

naviGatinG the reGulatory frameworkLogistical supply is far from the only hurdle encoun-

tered in Brazil. All participants in the market are af-

fected heavily by government efforts to regulate

development. Petrobras, for example, is the sole

operator of pre-salt projects, even though this re-

stricts Petrobras from deploying assets elsewhere.

LCR is a common complaint of companies entering

Brazil from abroad, but local players can find it a

hindrance too- Daniel del Rio, country manager at

Westshore do Brazil, a shipbroker, highlights Brazil-

ian regulation, whilst aiding businesses at home, also has a cost: “the

protection provided by these rules to Brazilian operators simply re-

moves the imperative on ship owners and shipyards to reduce costs.

In this way, Brazilian regulation fails Brazilian industry; Brazil should

have the ambition to be internationally

competitive.”

Not everyone is unhappy however. Patricia

Coelho, President of Asgaard Navegacao, an off-

shore services company, explains: “my vision of an

internationally operating Brazilian shipping com-

pany will be achieved under the umbrella of what I

describe as ‘The Brazilian Jones’ Act’ (Brazilian law

9,432), which protects Brazilian flagged vessels.”

This law means contracting companies must give

precedence to locally established companies.

Coelho’s business benefits from current policies in

place in Brazil, but this is not the case for every

participant in the Brazilian oil and gas sector.

Clearly, many local suppliers of goods and ser-

vices are in a better position, shielded in part from

the forces of international competition.

Håkon Ward, former general manager of Kongs-

berg Oil and Gas Technologies Brazil (KOGT) (now

Vice President for Engineering Services; Software

& Services), a company providing technology,

products and services for surveillance, integration,

and analysis of drilling and production operations,

highlights the need for international companies to “get close” to the

Brazilian market to deal with local regulation. “Over recent years

competition has increased, and regulation and tax systems have be-

come more challenging. For these reasons the importance of having

a local presence in Brazil remains clear; any company needs to be in

close proximity to the market and its clients in Brazil, KOGT being no

exception.”

Hakon Ward, former general manager of Kongsberg Oil & Gas Technologies Brazil, now VP Engineering Service Software & Services Norway

Patricia Coelho, president of Asgaard Navegacao

Daniel Del Rio, country manager, Westshore do Brasil

PetroBras’ notaBle milestones advancinG Production novemBer 2013 to may 2014:The FPSO-type platform P-63 came online in November 2013. The vessel is capable of processing 140,000 bar-rels of oil and 1 million cubic meters of gas per day and is the first produc-tion system at Papa-Terra (Campos Basin)

A second FPSO-type platform, P-58 started operations in March 2014. Located around 85 km offshore in Es-pírito Santo, in water as deep as 1400 meters the platform can process c180,000 barrels of oil and 6 million cubic meters of natural gas daily from both pre-salt and post-salt reservoirs.

Well 7-SPH-04-SPS was activated on April 3 2014 in the Sapinhoá field in water depth of 2,120 meters. This well has potential to produce 26,000 bar-rels of oil each day and is connected to the FPSO Cidade de São Paulo,

Most recently activated was the asset 7-LL-22D-RJS which started operating at Lula, on May 9, now contributing 31,000 b/d. This asset is connected to the FPSO cidade de Paraty by means of a buoyancy supported riser (BSR) - a piece of equipment Petrobras has cited as instrumental in this success

Production Pushes skywards for PetroBras

Like a rhinoceros, enraged by a swarm of stinging bees trampling a road

to safety through farm fences and hedges Petrobras has started to

smash through records- potentially confounding the critics who stated that

Petrobras could not produce quickly enough to cope with the company’s

notable debts.

The company has now reached production levels of 470,000 b/d in the

presalt layer of the Santos and Campos basins offshore Brazil. This is a new

daily production record according to the company and represents Petro-

bras’ assets beginning to return value to their owner.

The achievement represented the combined with production from 24

wells. Most recently activated was the asset 7-LL-22D-RJS which started

operating at Lula, on May 9, now contributing 31,000 b/d. This asset is con-

nected to the FPSO Cidade de Paraty by means of a buoyancy supported

riser (BSR) - a piece of equipment Petrobras has cited as instrumental in this

success and has delivered superlative production volumes from this well as

well as wells attached to the FPSO Cidade de Sao Paulo in Sapinhoa field.

At this end of this year, 15 new wells are predicted to begin production,

four in the Campos Basin and 11 in the Santos Basin.

Two further wells will be linked to Cidade de Sao Paulo, five to the Ci-

dade de Paraty, one to the P-48 platform and three to the P-58 platform. All

these platforms are already producing assets for Petrobras. Close at hand

however, the FPSOs Cidade de Ilhabela (recently arrived from China) and

Cidade de Mangalore ought to start operations in the second half of 2014.

These FPSOs will have two wells connected to them respectively- adding

even further to Petrobras’ significant and growing productive capacity.

19


One company that realized this early on was

Technip. Adriano Novitsky, CEO for the Brazilian

subsea division states: “The company has been

growing since starting in Vitoria 25 years ago. With

the pre-salt resource emerging, Technip realized

the opportunity and moved to construct a new fa-

cility in Acu. Our company decided five years ago

to increase R&D capabilities in Brazil. The company

has a technology center based at Vitoria, and an-

other here in Rio de Janeiro. In Vitoria, a lab under-

takes dynamic and static tests to evaluate the reac-

tion of the pipe to conditions that might be found

offshore.”

Technip’s SVP for Latin America, Jose Jorge Arau-

jo emphasizes the result of this early move for the

business is that ”the company has continuously been

working on one large project of this sort after another

since 2003, when work was undertaken on the P-52,

Brazil’s first locally built semi-submersible.”

Another company less delighted with the local content require-

ment regulation (LCR) is Repsol-Sinopec. José Maria Moreno, CEO,

states: “LCR is our greatest concern because it actively prevents the

procurement of FPSOs from abroad, which would allow production to

progress more swiftly.”

Despite this perceived obstacle, Moreno is clear why Repsol-Sino-

pec is in Brazil: “In 2005, however, pre-salt resourc-

es were discovered and this changed how compa-

nies, including Repsol, viewed Brazil entirely. The

pre-salt contain over 500 billion barrels of oil.”

“There are technical challenges to reaching

these larger, highly valuable resources, however

the industry has now managed to reduce costs and

this resource is commercially highly attractive.”

Repsol-Sinopec has various operations in Brazil,

including the Pao de Acucar field discovered in block- BM-C-33 in the

Campos Basin. There, Repsol-Sinopec is the operator with a 35 per-

cent share alongside Statoil and Petrobras. Of a number of deposits,

Pao de Acucar is the company’s most important, featuring a band of

oil 500m deep.

A company in Brazil that finds itself in the middle of this dance

between regulation and partnership is Sete Brasil Participações. João

Carlos Ferraz, CEO of Sete Brazil, states that the company’s “order

book will boost Brazilian shipyards and consists of 29 ultra-deepwater

automated design type rigs, capable of operating in the most difficult

of conditions.”

Sete’s order book is enormous, and offers Brazil a clear path to an

enhanced industrial sector. “These rigs will also utilize 55 – 65 percent

local content, and BNDES will advance 80 percent of the finance,” Ferraz

adds. “Given that our company will fuel whole sections of the economy,

it was always entirely likely that BNDES would support our efforts in this

Adiano Novitsky, CEO Subsea Division, Technip Brazil

Jose Jorge Araujo, SVP America Latina, Technip Brazil

Jose Maria Moreno, CEO, Repsol-Sinopec

cgg.com/brazil

• Robust 3D multi-client seismic data including BroadSeis™, broadband imaging

• Advanced marine seismic acquisition services, including broadband and full-azimuth techniques such as StagSeis™ and BroadSeis

• Basin & regional geologic multi-client studies from industry-leader Robertson

• Potential felds products including airborne, gravity and magnetic multi-client programs

• Satellite imaging and seeps database

• In-country subsurface imaging and interpretation expertise with specialized technology for pre-salt data

• Reservoir modeling and characterization software & services

PASSION FOR

BRAZILExceeding expectations for 50 years.

FocCGG_OGFJ_1406 1 5/21/14 3:17 PM

20


manner. Local content and producing here in Brazil

[was] the reason Sete Brazil was created. Without lo-

cal content rules, there would be no need for Sete

Brazil to exist.”

Petrobras and Sete Brazil are central to the growth

of Brazilian local industries; they give them shelter

and sustenance in the form of contracts. As the IOCs

add their muscle to the Brazilian oil and gas sector,

further development and cooperation will become

possible. It is clear that the industries associated with

oil and gas in Brazil will do very well in the long run, and LCR certainly

adds to local demand, bolstering local suppliers. It is also clear that inter-

national companies can still add significant strength to local efforts and

many of the technologies and techniques that international players can

bring to Brazil are core to bringing down costs associated with extrac-

tion, key to Petrobras’ dream of producing 4.2 million barrels of oil per

day in 2020.

team work makes the dream workBrazilian policy makers are certainly aware that new ideas can expedite

access to the value of Brazil’s pre-salt resources, as well as ensure maxi-

mum value is taken from existing fields, onshore and offshore. For this

reason, companies operating in Brazil are obliged to invest a portion of

their revenue in research and development. Alongside indigenous re-

search bodies, such as the Centro de Pesquisas Leopoldo Américo Mi-

guez de Mello (CENPES), incoming experience is again assisting to

push Brazil’s ambition forward. Kjetil Solbrække, President at SINTEF, a

research institution originating in Norway, explains his institute’s par-

ticular strength: “SINTEF has a very proficient group of staff working

here in Brazil on flow assurance [which] is one of the technological areas

that has brought Norwegian abilities in extracting oil forward a great

deal. It allows more oil to be directed to the same number of process-

ing plants. This offers huge financial savings on oil extraction in the

presalt resources.”

Nelson Leite, President of FMC Technologies, a technology solu-

tions provider, indicates foreign entities offer more than technology:

“IOCs offer further investment as well as novel experience: the par-

ticipation of more IOCs in the Brazilian market would be of great

benefit in realizing the country’s ambitions for production. The in-

volvement of IOCs together with Petrobras on the Libra field is an

excellent development because all these players will bring their own

experiences to the table; new technologies can and will assist them

in achieving their aims.”

João Ferraz of Sete Brazil agrees with the idea that foreign compa-

nies working alongside their Brazilian counterparts is beneficial: “Sete

Brazil is an equity investment company, and does not desire to become

a drilling company.” The presalt domain is a huge resource: “Petrobras

will require a huge amount of everything in a very short period of time.

Service providers operating in Brazil will have to initiate a very fast track

increase in capacity, and without stimulation to grow or assistance, they

Joao Carlos de Medeiros Ferraz, diretor president, Sete do Brasil

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FocAsg_OGFJ_1406 1 5/21/14 3:08 PM

21


would likely fall behind Petrobras’ demands for

equipment and services.

“Sete Brazil comes not to replace existing play-

ers, but to support them, offer its strong balance

sheet and assets to help service companies who

could not keep pace with Petrobras’ requirements.

A joint venture business model is advantageous to

both parties and offers a route to rapidly providing

the capacity to extract Brazil’s oil and gas

resources.”

Denis Palluat de Besset, managing director of To-

tal E&P Brazil, extolls the opportunities he sees from

connecting with other players. Speaking of the Libra

consortium, he remarks: “a deepwater champion

has been created. The level of experience and abili-

ty within this consortium is astounding and further-

more, the power the Chinese bring to the consor-

tium too, means that Libra will generate significant

kudos for all involved parties.”

Felipe Lopes, general manager at Sotreq, a Caterpillar dealer, at-

tests to advantages cooperation and collaboration has for equipment

companies. Having access to Caterpillar’s international brand gives

Sotreq recognition, whilst Sotreq’s local knowledge and high quality

repair system for Caterpillar products as part of an international chain

reinforces that brand. “Not long ago, [Caterpillar] opened a factory in

Brazil to build small generator sets, and we used this as a precedent to

argue that large engines such as the 3500 units- Sotreq’s cash cow in

the offshore market- should also be produced here,” he explains.

Lopes highlights the value of other commercial links too: “Sotreq

remains principally a Caterpillar dealer, however, for some contracts, it

is important to have the ability to add some extra capacities to the

finished offering.” For this reason, Sotreq also works alongside Vulkan

do Brasil, the Brazilian affiliate of the Germany-based mechanical trans-

mission technology company.

exPansive amBitionInternational companies are eager to become involved in extracting

Brazil’s hydrocarbon resources and equally, Brazilian oil and gas com-

panies now are beginning to look at openings beyond the ‘safe port’

created by the Brazilian regulatory system. They might not have the

protection offered by LCR, as it directs more volume to Brazilian busi-

nesses, but the opportunities out with the country are clearly worth a

degree of risk

These opportunities extend beyond solely extracting hydrocarbons.

Marcelino Jose L. Nascimento, chairman of Bravante, a company oper-

ating in the Platform Supply Vessel (PSV) shipbuilding and bunker sup-

ply business (currently restructuring) sourced a number of its PSVs out-

side Brazil, in the United States. “Bravante decided to source part of its

fleet in the USA because the shipbuilding industry there is reputable

and respected, and vitally to our business also has some very attractive

financing packages,” he says. “We received one of the lowest interest

rates on our fiscal package - a 23 year bond at 3.6 percent interest each

year. This was a very good opportunity.”

Companies looking to wider horizons include both small players and

some of Brazil’s commercial champions: Queiroz Galvao Oil and Gas

for example has a letter of intent to drill in Paraguay and will be moving

a drilling unit there in the near future. Galvao,

QGOG’s chairman says: “We want to make our com-

pany international however, and expand where we

can. Growing the company means that we must be

a player in more than one country.”

Small companies too, wish to expand. Oil Find-

er’s Manlio Mano states: “alongside University Col-

lege of Los Angeles (UCLA), Oil Finder looked at

moving further afield, into international markets.

Currently, Oil Finder has a unique offering which is

particularly valuable at the pre-bid stage. There are

around ten auctions globally each year and this

gives our business great scope to market its product

through multi-client bids.”

Brazilian companies show an eagerness to over-

come additional costs of production and to reach

the international market. “CAPEX in Brazil is ex-

tremely high, and because everything is tailor made

for Petrobras this means that an internationally com-

petitive vessel must be highly developed, offering premium services,”

states Asgaard’s Patricia Coelho. “Petrobras is highly demanding, and

Asgaard has responded to this by equipping its fleet with Rolls Royce

engines for example. This means that our vessels are equipped to de-

liver services to any company, in any location.”

The future of the Brazilian oil and gas sector looks bright; and

through increased local demand, likely to invigorate the country’s wid-

er manufacturing base too. Policy makers looking to the future how-

ever, still need to tailor regulation to enable Brazilian businesses to

thrive in any oil environment.

Gold Star Platform in Niteroi getting ready for PreSal works in Gold Star area - Queiroz Galvao Oil & Gas

Marcelino Jose L. Nascimento, chairman, Bravante

Felipe Lopes, general manager, Sotreq

Nelson Leite, President, Subsea Systems FMC Technologies

Kjetil Solbrække, President, SINTEF

22

BRAZIL JUNE 2014

INTERVIEW WITH:

João Carlos de Luca & Milton Costa, President & Executive Secretary - (Instituto Brasileiro de Petróleo, Gás e Biocombustíveis)

João Carlos de Luca & Milton Costa, PRESIDENT & EXECUTIVE SECRETARY - IBP

Energyboardroom: What are the key themes on top of the agenda of the industry today?JOÃO DE LUCA: We just finished our con-tribution to help the government build the new Production Sharing Contract (PSC) that shall apply to the 1st pre-salt licensing round. IBP was closely involved in the pro-cess over the past four months. We com-mitted much of our manpower to this: law-yers, technicians, fiscal specialists, in order to bring forward the interest of our mem-bership to the government.

EBR: Another matter of debate is the decision to make Petrobras sole opera-tor for pre-salt. Isn’t it in the best inter-est of the country and of the industry that more operators get involved?JOÃO DE LUCA: IBP has been opposed to the single operatorship for Petrobras in the pre-salt since the government first sug-gested it. In our opinion it is good neither for Petrobras nor for the rest of the Brazil-ian industry.

Petrobras cannot be obligated to par-ticipate in blocks that they do not have a direct interest in or even did not partici-pate in the economic formulas for. They cannot support a proposal that does not make economic sense according to the information that Petrobras has for the pre-salt. MILTON COSTA: We are in favor of other companies participating and operating and sharing financial and technological

means. The current model can limit the devel-

opment of pre-salt, because of the limited capability of Petrobras in terms of HR and financial resources.

EBR: What are the most pressing tech-nological issues that the Brazilian oil & gas industry faces specifically in pre-salt? JOÃO DE LUCA: The key challenge today is not so much technological but rather financial: how can we further reduce costs of the technology applied to raise the attractiveness?

Drilling operations need to be further optimized. This is work in progress. The pioneer wells in pre-salt cost up to 200-300 million USD. In Lula, Petrobras is already drilling for some 70-80 million USD, in less than three months.

Brazil has been very lucky, because the

IBP has been opposed to the single operatorship for Petrobras in the pre-salt since the government first suggested it. In our opinion it is good neither for Petrobras nor for the rest of the Brazilian industry’.

Interview with: João Carlos de Luca & Milton Costa, President & Executive Secretary - IBP

23

BRAZIL JUNE 2014

João Carlos de Luca & Milton Costa, PRESIDENT & EXECUTIVE SECRETARY - IBP

pre-salt discoveries came just after the techniques for the deepwater Campos Basin had matured.

When we discovered the pre-salt fields in 2007, we already had 20 years of experi-ence in building subsea technology behind our belt such as the wet christmas tree. We just had to try to extend that kind of tech-nology and innovate technologies to com-pensate CO2 challenges in gas in pre-salt areas.

Indeed Petrobras’ technological prog-ress is impressive. Simultaneously, the com-pany has been criticized by analysts and investors as investment spending has yet to result in significant increases of crude oil production, despite finding some of the world’s largest oil discoveries in 20 years. How justified is this criticism?Milton Costa: Petrobras needs to keep their financial capabilities to face their strong CAPEX, one of the largest in the world. It is very difficult to criticize Petrobras if you see how steeply its CAPEX has increased over the past decade and if you look at the opportunities that this investment can cre-ate in Brazil for suppliers, for employees, for tax. It is a huge project. Of course this has its challenges; it is not easy to invest 234 billion USD in five years without any problems.

Petrobras has a huge financial challenge in the next three to four years. The industry and IBP have to try and help Petrobras and the government to adjust the framework of the sector to incorporate different visions, private visions, and foreign visions, to con-tinue improving the performance of the oil industry in Brazil.

EBR: You speak about including different visions in Brazil’s E&P campaign. What role do you see for junior E&P players? JOÃO DE LUCA: It is not good for the Bra-zilian industry and the market for juniors that OGX and HRT are going through dif-ficult times. At the same time, there are

other, more positive stories to point at such as Queiroz Galvao or Barra Energia.

Nonetheless I do not think that the OGX & HRT stories scare off investors. Aside from the obvious hydrocarbon opportuni-ties that Brazil offers, the stability of the country and the strength of the rule of law make this a very attractive country for inves-tors. MILTON COSTA: I truly believe that Brazil is one of the best countries in the world to invest today given the size of the country and its population, the pace of its economic development, and the size of the opportu-nities both offshore and onshore. The upcoming bid rounds (the 1st pre-salt round and the 12th licensing round) will open new frontiers.

The country has 7 million km2 of sedi-mentary basins. Few countries can boast similar potential. Of course we have to work hard to make it all work, but that doesn’t change the real factors of the oil industry.

Brazil is home to a mature oil & gas industry now with small and medium com-panies that create a dynamic market. Chal-lenges will continue to arise, but the results and gains will far outweigh the problems.

Milton Costa: ‘Petrobras has a huge financial challenge in the next three to four years. The industry and IBP have to try and help Petrobras and the government to adjust the framework of the sector to incorporate different visions, private visions, and foreign visions, to continue improving the performance of the oil industry in Brazil.‘

24

BRAZIL JUNE 2014

INTERVIEW WITH:

Almir Barbassa, CFO - Petrobras

Almir Barbassa, CFO - PETROBRAS

Energyboardroom: Three years ago, you launched the biggest IPO an oil & gas company had ever done till then. Could you please outline what the destination was of this money, and the returns it generated to date?ALMIR BARBASSA: Indeed in 2010 Petro-bras raised as much as 70 billion USD in what was to date the world’s largest share sale.

In the same year, Petrobras invested 42.5 billion USD of new stock to acquire the rights to produce 5 billion barrels of government-owned oil.

Most oil companies would love to be presented with this opportunity, but for-tunately it came to us. But it takes a period of heavy work before we start producing the oil and generate the cash flow.

In less than two years, we will be there. We expect first oil in 2015. Once produc-tion starts, the cash flow from each barrel of oil produced in this area will be much higher than the oil we are currently pro-ducing.

EBR: As sole operator of the pre-salt according to government directives, Petrobras carries a big responsibility. Is Petrobras able to carry the finances of developing the massive pre-salt Libra field?ALMIR BARBASSA: The Libra field holds expected recoverable reserves of 8-12 bil-lion barrels and is an important opportu-nity for Petrobras. Although it requires a large bonus upfront, it is still a small sum compared to the amount of oil that may be there.

Today we are working to develop the existing fields we have discovered. Petro-bras is installing more than thirty oil rigs

between 2013 and 2018. Most of the CAPEX needed to build this equipment has already been deployed – not only the 42 billion USD for the transfer of rights, but the development of 20 FPSOs, each one of which costs us 1.5-1.8 billion USD.

In the next years we will be executing more exploration activities in Libra, and the large volumes of cash for developing this new area will not be needed until 2017 and onwards. This time frame fits our cash flow very well.

EBR: Could you outline how you approach the company’s debt manage-ment and how you assess the risk for the company to retain investment-grade rat-ing? Where do you see the biggest chal-lenges coming from?ALMIR BARBASSA: There are few compa-nies in the world today that invest more in the future than Petrobras. All the debt that we are raising is for growth.

Petrobras’ investments today far out-strip our EBIDTA, and even without such investments we could be growing. But we feel we have to optimally capitalize on the opportunities we have in front of us, such as the pre-salt fields. Already today we are producing more than 300.000 bpd, while the fields were discovered in 2007. Reach-ing such output in six years’ time is faster than many big fields in other countries.

In fact today we have USD36 billion (180

‘There are few companies in the world today that invest more in the future than Petrobras. All the debt that we are raising is for growth.’

Interview with: Almir Barbassa, CFO - Petrobras

25

BRAZIL JUNE 2014

Almir Barbassa, CFO - PETROBRAS

billion reals) of work in progress. Petro-bras’ value is low looking at the return that the company is offering today. But looking at our cash flow, it is completely different situation.

EBR: The Brazilian government lets Petrobras charge Brazilians world prices for gasoline, diesel fuel and cooking gas. Where do you stand in this discus-sion?ALMIR BARBASSA: Petrobras’ current pricing policy is in place since 2002, and it adjusts domestic to international prices in the medium range. The policy was exe-cuted consistently most of the time, but we have fallen behind – for more than two years now. This is the result of deprecia-tion effects.

There is some impact from the govern-ment’s macro-economic policy on energy prices. Brazil has been facing pressure of inflation for some time now. At the root of the cause are certain government policies that lead prices to depreciate, which hap-pened in May 2012 and June 2013, and urged Brazil needs to import goods.

Through this, Brazil is importing costs, which in turn reduces the adherence of domestic prices to international ones.

The management of the company is aware of this and presents its view to the board every meeting, outlining where we shall arrive in terms of cash flow, rating, and investments.

EBR: How difficult is it to balance the interest of the Brazilian government and giving return to the investors?ALMIR BARBASSA: We have been well aligned most of the time. The government is aligned with the interest of the minority shareholders.

The shadow of inflation looms large over Brazil.

The year 2010 was one of the absolute highlights in the economic history of Brazil,

with 7.5 percent GDP growth. But then, we reached to full employment, and the gov-ernment did not move the direction of the macro-economic policy. They should have moved from consumption to investment and create more production capacity, but instead continued injecting more demand in the economy. The result was inflation and higher costs.

We need to build capacity and de-bot-tleneck our infrastructure. The government has made mistakes in terms of auctions to attract private investment in these areas.

With that, we are facing more inflation, making it more challenging to align between our interest and that of the gov-ernment. But even in such challenging cir-cumstances the government raised energy prices several times: in mid-2012 and twice early 2013, totaling 15 percent for diesel, and 24 for gasoline. These are clear efforts of the government to adjust the situation.

‘Most oil companies would love to be presented with [the presalt] opportunity, but fortunately it came to us. But it takes a period of heavy work before we start producing the oil and generate the cash flow.‘

26

BRAZIL JUNE 2014

INTERVIEW WITH:

Renato Bertani, CEO - Barra Energia

Renato Bertani, CEO - BARRA ENERGIA

Energyboardroom: What is the new proposition that Barra Energia brings to the existing oil and gas paradigm in Brazil?RENATO BERTANI: That is the context. Barra Energia is a small company com-pared to the players that are involved in this area. We have been successful first of all because we have the required finan-cial backing. We put together a very solid, experienced team of geologists, reservoir engineers, geophysicists that knows how to be selective in acquiring opportunities.

Selective is a key word here. We assessed over 20 opportunities before deciding to acquire two blocks: BS-4, and BMS-8. We acquired ten percent of BMS-8 from Shell, and ten percent from Shell and 20 percent from Chevron on BS-4.

Out of 1.2 billion USD we spent roughly 500 million USD, so we still have lots of capability to carry on our investment plan. We will continue extremely disci-plined in terms of any future deals that we will incorporate in our portfolio.

This activity is intrinsically risky. Under-standing the risk is crucial. In pre-salt, some say that there is no risk, or at least the risk is very low. It is an extraordinarily new oil province, but there are lots of uncertainties that companies operating in the province have to deal with – suc-cess is not certain when investing in pre-salt.

Indeed pre-salt challenges are mani-fold: very unusual reservoir, expensive wells, and logistical hurdles. How does a

rookie company mitigate risk in this envi-ronment through your portfolio manage-ment?

The first thing is spreading the risk. It is essentially good technology and good understanding of the issues. You need a capable team that will be able to under-stand the issues. We need to start by understanding that the risk is there. We need to be prepared to eventually have results that are not as expected, because intrinsically there is risk.

But you mitigate that risk by under-standing the issues that are related to your activity and the level of risk that you have to live with, and are able to spread and build a portfolio with sufficient diver-sification. Focus in a certain place, and within that area seek diversification and build together multiple opportunities, so that in the end, in the balance, you increase the chances of success.

EBR: Could you speak to the set-up of this first pre-salt licensing round, pri-marily the Production Sharing Con-tracts and Petrobras’ operator obliga-tion? RENATO BERTANI: First of all, the new contract model that the government decided to adopt for the pre-salt has some innovative features. One of them is a sliding scale for sharing of profit oil based on oil prices and average well pro-ductivity. A number of these features have to be tested in real life as we move for-ward.

To give you the broad picture, the

Interview with: Renato Bertani, CEO - Barra Energia

27

BRAZIL JUNE 2014

Renato Bertani, CEO - BARRA ENERGIA

industry is prepared to work with Produc-tion Sharing Agreements, and I expect strong interest of companies around the world in the Libra bid round. The simple reason is that it is a huge discovery, even though there is a significant range of uncertainty.

So the information from this well has to be extrapolated to the rest of the whole area where we expect that there may be oil. That indicates that there is a range of uncertainty in the size of the accumulation. Nevertheless, it is some-thing very significant, and that is why I think we will see strong interest from oil companies around the world.

Petrobras is an extraordinary company that is very capable – I do not have any doubts that they can do it. They have already demonstrated this: they pro-duced over 300.000 bpd from pre-salt in June 2013.

EBR: Talking about Petrobras as an extraordinary company that has devel-oped the expertise to exploit these challenging fields – do you feel that the pace of technological development of Brazil’s oil & gas industry is high enough? RENATO BERTANI: Certainly the achieve-ments so far are extraordinary. Start with the very fact that it took wells that cost 150 to 200 million USD to discover the pre-salt. That credit goes to Petrobras and their partners, decided to drill below the pre-salt layer and test for the possibil-ity of the existence of a reservoir, which you do not find if you drill below the salty shallow waters offshore Brazil.

There was the vision that we should change the paradigms, and through good geosciences, Petrobras and their partners concluded that there could be high-qual-ity reservoirs in deep waters not seen in shallow waters. That change in paradigm

was what caused the company to discover the pre-salt.

Then, drilling through 2000 meters of salt, in some places with very high tem-peratures and pressures or with very high levels of CO2 and H2S associated with oil, poses serious challenges, also logistically. We are talking about wells that are 200-300 kilometers from the coast. All these challenges are being overcome. There is no question about the availability of the technology to continue drilling and pro-ducing the pre-salt.

Continuing to invest in R&D on top of what is done already is a must. Certainly we could create a lot more value by opti-mizing drilling operations, so that we could drill faster, cheaper and safer, or by improving recovery factors so that we could extract, with the same number of wells, more oil from the reservoir.

‘Barra Energia is a small company compared to the players that are involved in this area. We have been successful first of all because we have the required financial backing. We put together a very solid, experienced team of geologists, reservoir engineers, geophysicists that knows how to be selective in acquiring opportunities.’

28

BRAZIL JUNE 2014

INTERVIEW WITH:

Marcos Assayag, former Executive Manager - CENPES

Marcos Assayag, FORMER EXECUTIVE MANAGER - CENPES

Energyboardroom: What is CENPES capacity for research today?MARCOS ASSAYAG: Petrobras started its R&D activities in 1963. On December 4 of this year, we are celebrating 50 years of existence. This is an integrated R&D center. This means that we focus on R&D all together in one center.

We have 227 labs divided over two buildings. We have a very modern center, with other smaller centers in other parts of the country that can serve if we want to test something in the field.

Petrobras today invests 1.1 billion USD in R&D, which is a seven-fold increase from 2001. Roughly 60 percent of the money is invested in exploration and production.

EBR: What is the motivation for innova-tion for Cenpes today?MARCOS ASSAYAG: Today Brazil has 15.7 billion barrels of reserves, but the potential with the pre-salt is to reach 31.5 billion bar-rels of oil equivalent, 92 percent of which will be offshore, and 8 percent onshore.

Today we have confirmed 5 billion trans-fer of right, and 10.8 billion in the pre-salt concession areas, excluding Libra.

The motivation is substantial deepwater oil reserves in the Campos Basin, discov-ered in 1984, we discovered pre-salt in 2006 in deepwater and ultra-deepwater in the Santos Basin at up to 2000-2500 meters of water depth.

All these fields are located in pre-salt and far from shore. We need to adopt new technologies to exploit these fields, and in

a competitive environment, because we opened the market in 1997.

Furthermore, we do this in a sustainable manner, because our industry is potentially polluting. We have to take all the measures we can to avoid accidents, preserve the environment.

EBR: What is the strategic organization behind this?MARCOS ASSAYAG: In terms of strategy, we are organized in five centers that take care of research & development, notably geosciences, geosciences & well engineer-ing, product engineering, downstream & biofuels, and gas, power and sustainable development.

We have two areas dedicated to basic engineering, integrating R&D with engi-neering, because through the engineering we can concretize the innovation directly to the field. One area is dedicated to explo-ration and production such as designing new platforms, semisubmersibles, jackets, FPSOs, etc, and in downstream we have people that design refineries, petrochemi-cals, fertilizers, etc.

We have then one area called technol-ogy management, which is basically work-ing with me to manage the rest.

All the R&D activities develop from the strategic plan that is developed by the board and follow certain processes. Next to that, we have a High Risk, High Reward project which is normally long term and can bring very good efficiency to Petrobras for 20 years from now. The activities under this

Interview with: Marcos Assayag, former Executive Manager - CENPES

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BRAZIL JUNE 2014

Marcos Assayag, FORMER EXECUTIVE MANAGER - CENPES

header are not directly linked to the strate-gic plan. Roughly five percent of the research we do falls under this header. An example would be our efforts to develop a system for high power generation in sub-sea, 50 megawatt, to feed the subsea equipment.

Then we have a lot of challenges for the coming years, and under the header Future Vision we gather projects for the long term.

We have a range of projects aimed to expand the limits of our current business, projects aimed at value added and product diversification, and at sustainability.

One of the directions aimed to expand the limits of our current business is called Exploratory frontiers. For them, pre-salt is already history. another key area under this is logistics, which is becoming very impor-tant for us. Brazil is a huge country with many frontiers. Today we focus on the equatorial margins for instance. The Santos area is already discovered for them.

In sustainability we are working to reduce emissions and water treatment, min-imization of water consumption.

EBR: How should our international read-ership judge the progress of pre-salt pro-duction?MARCOS ASSAYAG: Today, to produce the pre-salt in very competitive ways is the key focus of Petrobras.

Already in June 2013, we produce over 300.000 bpd. Pre-salt is a reality. We have a lot of oil to produce and to increase pro-duction.

Today we produce 2 million bpd, and increase to 4.2 million in 2020. Most of the technologies to produce the pre-salt are available today. We give full support to the E&P department to achieve this. We have people work directly to solve problems as they arise during drilling, in the reservoir area, in subsea, etc. we give technical ser-vice when they call us.

EBR: How important are research collab-orations for you? MARCOS ASSAYAG: There are few projects we do alone. For most of our projects we work together either with R&D institutes or universities or the supply and service com-panies. We call this open innovation. This can start in the idea, we can have it pre-project, during the project, or in the imple-mentation phase.

We have the Rio Technology Park, which helps us a lot in establishing long-term rela-tionships with the suppliers. Among others we have a very good relationship with FMC Technologies, Halliburton, Baker Hughes, GE, Schlumberger, Siemens, and BG.

Looking at collaborations with academia, Petrobras has increased its investments in Brazilian universities eleven times between 2004 and today. The sum stands at USD341 million today.

Cenpes is a prestigious employer and known to invest in its employees. We greatly value and stimulate international exposure of our employees. We have a budget to invest in this.

Since conducting the meeting with Marcos Assayag he has now be-come executive manager for rigs and production units in the explo-ration and production division at PETROBRAS.

One of the directions aimed to expand the limits of our current business is called Exploratory frontiers. Pre-salt is already history.

30

BRAZIL JUNE 2014

INTERVIEW WITH:

Denis Palluat de Besset, Managing Director - Total E&P Brazil

Denis Palluat de Besset, MANAGING DIRECTOR - TOTAL E&P BRAZIL

Energyboardroom: Total plan to invest $300 in Brazil (out with Libra commit-ments) in 2014. Yet you yourself stated that this is a limited amount of outlay, in part caused by the late arrival of a rig to the Xerelete field, which will only arrive next year. Where will this money be focused?DENIS PALLUAT DE BESSET: Next year will be interesting for Total in Brazil, as steps will be taken to put the Xerelete field toward production. Whilst the field itself was found about a decade ago, and was initially only considered to be a post-salt discovery in water 2,400 meters deep with heavy oil, yet more recently it has been ascertained there is a presalt prospect lying underneath. Total will be seeking to discover the full potential of this field.

The presalt element of this field may add substantial reserves which would make Xer-elete commercially highly attractive and a represent a great prize for the company.

EBR: Last year, Total took over the title of ‘operator’ of the Xerelete field in the Campos Basin from Petrobras, How did Total put an end to these hold ups exist-ing on this well and to what extent will Total overhaul the working practices at the rig?DENIS PALLUAT DE BESSET: Unpredict-able circumstances or events causing delays should almost be expected in this business; all one can do is anticipate where they might arise, and ensure work moves back on track. Drilling a single well here in Brazil is difficult because of cost associated with subletting drilling rigs- most are contracted for longer projects. Total was fortunate to agree with

Petrobras to use one of their rigs.The delay drilling this well until January

2014 is no issue of significance. The reasons for this delay are not financial, or statutory reasons and operations will be progressing in the near future.

Xerelete seemed a limited volume and relatively unexciting find until drilling deeper discovered the pre-salt reservoirs. It is a positive result to discover significant reserves like this and Total considers this to be a marker signifying our increased pres-ence in Brazil.

EBR: Whilst your presence has certainly increased, Total’s existence in Brazil, with no oil output yet, really does not reflect the importance of the company on the World Energy map nor the importance of Brazi. How do you explain this situation and do you have any further comments on this?DENIS PALLUAT DE BESSET: At the point of discovery of pre-salt resources in Brazil, Total was non-existent here. The possibili-ties created by the pre-salt fields meant that Total decided to refocus on this country, building up its presence; this strategic deci-sion has been implemented over the last few years. Firstly, Total bought 20 percent of the rights to block BM-S-54 “Gato de Mato” from Shell, secondly, Total took over the operatorship of Xerelete from Petrobras which was another strategic decision aimed at expanding our presence. Thirdly, we started to invest in greater exploration, and we realized this tangibly through acquiring ten new concessions in the 11th bidding round. The cherry on the cake was entering

Interview with: Denis Palluat de Besset, Managing Director - Total E&P Brazil

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BRAZIL JUNE 2014

Denis Palluat de Besset, MANAGING DIRECTOR - TOTAL E&P BRAZIL

into the Libra consortium.Five years ago it was true there was a gap

between the importance of Brazil and Total’s representation here, but now how-ever Total’s efforts to secure a significant chunk of this market at the moment have closed this margin entirely.

EBR: Total joined the Libra consortium late over concerns about political influ-ence. What finally overcame Total’s con-cerns and gave you confidence that the Libra project would not be politically compromised? DENIS PALLUAT DE BESSET: Those com-panies who are absent from Libra will be the ones who most regret the outcome of the Libra auction. Total is very happy to be in the Libra consortium because the Produc-tion Sharing Contract final version, pub-lished in August this year showed significant improvements on earlier versions- suffi-ciently so to make this contract attractive.

Changes in the governance of the proj-ect too, helped assuage any concerns we had. When we saw the persons elected to become directors of PPSA, we realized that the government was eager to promote the early and effective development of the Libra resource. The political risks which had been the subject of much discussion, seemed far smaller following this development.

EBR: You have previously praised the ambition behind the Local Content Requirements but also openly raised fears about the Brazilian supply chain. How has local content affected Total’s business and what would be a balanced solution that would offer satisfaction to both parties?DENIS PALLUAT DE BESSET: One of Total’s concerns as an IOC operating in Brazil is about local content requirements. These commitments cannot be allowed to kill the project. At the moment, LCR is a punitive system. Those companies not achieving

required levels of LCR face fines up to 60 percent of the value of what they will not have achieved in terms of Local Content commitment. This has the potential to be enormous; it can kill a project and means that companies may not engage with proj-ects, afraid of the risks doing so would entail.

An incentive system is wiser, encourag-ing investment in the areas of the sectors which are providing for the needs of com-panies such as Total. This would make the system more beneficial for the contractors, the whole supply chain and the govern-ment, rather than simply hazardous to investment.

‘One of Total’s concerns as an IOC operating in Brazil is about local content requirements. These commitments cannot be allowed to kill the project. At the moment, LCR is a punitive system. An incentive system is wiser, encouraging investment in the areas of the sectors which are providing for the needs of companies such as Total. This would make the system more beneficial for the contractors, the whole supply chain and the government, rather than simply hazardous to investment.’

32

BRAZIL JUNE 2014

INTERVIEW WITH:

José Maria Moreno, CEO - Repsol Sinopec

José Maria Moreno, CEO - REPSOL SINOPEC

Energyboardroom: Since you arrived in your current role in April 2012, what have been your principle objectives, and how has your previous experience helped you achieve them?JOSÉ MARIA MORENO: When I arrived in 2012, I was already familiar with the company’s assets here in Brazil- as I had previously been employed in a role as Repsol’s Portfolio Manager. I remember that approximately ten years ago, Brazil’s oil resources, as they were understood then, were typically classical post salt- deposits. In 2005, however, pre-salt resources were discovered and this changed how companies, including Rep-sol, viewed Brazil entirely. The pre-salt resources include resources over 500 bil-lion barrels.

There are technical challenges to reaching these larger, highly valuable resources including drilling through the salt and managing extraction. However, with investment, the industry has now managed to reduce costs and this resource is commercially highly attractive.

The pre-salt finds are obviously the most important development in the Bra-zilian market at the moment- accessing them is the foremost ambition of Repsol Sinopec.

EBR: Repsol Sinopec is a joint venture; what has made it a success, are there any challenges- in terms of manage-ment what are the trials of “working with two masters? JOSÉ MARIA MORENO: For the time being this has not been a problem. When

the company’s mutual overseers have met, there has never yet been any discord of note- a remarkable feat when so many items of business must be considered. There is also considerable input in terms of human resources from both companies which makes communication easier. As Repsol is the majority shareholder with 60 percent control, the CEO is appointed by Repsol; whereas Sinopec appoints the CFO- there are a number of positions allocated like this and it facilitates com-munication between the organizations. The result has been a very effective com-mercial unit.

EBR: You started producing earlier this year at Campo Brasileño. How has this progressed through the year, are you on target and what are the technical challenges you have faced in this first phase of operations? JOSÉ MARIA MORENO: Repsol Sinopec has varied operations in Brazil. The initial planned output at Campo Brasileno was 30.000 bpd and is now close to 120,000 bpd without any problem; and the com-pany is fortunate that there is a high per-meability in the presalt resevoirs. Whilst the postsalt resources are found within a layer of sandstone, the presalt is in a car-bonate reservoir which has high produc-tivity. The only limitation to accessing these resources is technological and for this reason players with highly refined technology and the ability to invest sig-nificantly in Brazil are required to develop these assets.

This year too, we have had a good dis-covery at the Santos 50 field. It seems to

Interview with: José Maria Moreno, CEO - Repsol Sinopec

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José Maria Moreno, CEO - REPSOL SINOPEC

be in the range of the other notable finds in the presalt. Works are progressing in Campo Brasileno capitalizing on a great period of forward progress for Repsol Sinopec.

EBR: The Mylos rig has recently arrived on the BM-C-33 block after some delay- can you tell us about the status of this operation?JOSÉ MARIA MORENO: We also have a very important block- BM-C-33 in the Campos Basin, where we are the opera-tor with a 35 percent share alongside Statoil and Petrobras. There are three dis-coveries in this block including the famous Pao de Acucar find. We pre-sented the evaluation plan to ANP last year, and a few days ago the Mylos rig started operations on this well. We have moved the Mylos rig between our Seat-2 well and Pao de Acucar due to problems with the BOP (blow out preventer), though these have been resolved at the moment.

Pao de Acucar has a great deal of gas on site, and for the moment it will be eas-ier to move ahead at Seat-2 until we have found a means of using this gas in a com-mercially useful function. For the time being, we have one well in each discov-ery, and will be proceeding with drilling further appraisal wells.

When we initially discovered the Pao de Acucar well, the depth of the resource was both surprising and exciting- the oil is in a band 500m deep. We needed to repeat drillings to ensure that this discov-ery was in fact gas with condensate and not light oil with gas. These drillings have equipped us with information that will let us deal effectively with conditions on site.

The Campos Basin’s BM-C-33 is Rep-sol Sinopec’s most important focus at the moment- the company is very excited about it.

EBR: Which projects look likely to spur on growth at Repsol Sinopec?JOSÉ MARIA MORENO: We have oper-ating assets in Albacore Este, a post salt reservoir. Peak production was around 180,000 bpd, but is now around 55-60,000bpd. We are currently also developing B-N-S-9 in the Santos Basin which will operate with two FPSOs and another well to the North with one FPSO due to our 25 percent share in this field, which is expected in total to produce 250,000 -270,000 bpd.

In the same block, we have another discovery of significance- Carioca. We intend to put this into production in the latter half of 2016 and the production we expect from that is in the range of 80- 100,000 bpd with peak production occur-ring in 2017. Our other partners in this effort are Petrobras and BG.

“In a ‘competitive test run’ held in cooperation with Petrobras, areas indicated by Oil Finder to have oil resources had a 65 percent chance of having traces of petroleum chemicals in the sea floor compared to 25 percent outside.”

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BRAZIL JUNE 2014

INTERVIEW WITH:

Antonio Augusto de Queiroz Galvao, Chairman - Queiroz Galvao Oil & Oas

Antonio Augusto de Queiroz Galvao, CHAIRMAN - QUEIROZ GALVAO OIL & GAS

Energyboardroom: Queiroz Galvão started as an engineering company. Now, it is one of the most impressive corporate groups in Latin America, perhaps the world. How have you been so successful?ANTONIO AUGUSTO DE QUEIROZ GAL-VAO: The group was founded in 1953 as a small construction company building roads and conducting minor engineering projects. However, we developed over the years into one of the largest groups in Brazil today. At the moment, we are a diversified company with around 50,000 employees involved not only in engineering and construction, although that remains our principal enter-prise, but also oil and gas, real estate, renew-able energy, environmental services, steel, shipbuilding and agriculture.

One fundamental value that drove Queiroz Galvão’s success is its strong work ethic. The company also places an empha-sis on loyalty, and invests and trains its employees to reward such loyalty. These principles have been important across the group’s 60 year history. Our values have brought us to where we are today.

EBR: What are the growth drivers for Queiroz Galvão across your business portfolio?ANTONIO AUGUSTO DE QUEIROZ GAL-VAO: Oil and gas is certainly one of our growth drivers. The group is present in a wide range of activities in this industry, including oil and gas exploration and pro-duction through Queiroz Galvão Explora-ção e Produção (QGEP) and drilling ser-vices through Queiroz Galvão Óleo e Gás

(QGOG). The Queiroz Galvão Group also operates in this segment via its construc-tion arm, building refineries, and its ship-building arm, building FPSOs, rigs and tankers, through its stakes in Quip and Atlântico Sul shipyards.

This segment has grown significantly since 1980, beginning with what was our small onshore drilling company. QGOG.Today, this company also drills offshore with focus on ultra-deepwater and its assets include 12 floating drilling units, eight cur-rently operating and four under construc-tion. One, the Brava Star, will be completed this year in Korea. It is a top-of-the-line well-equipped unit built by Samsung.

QGOG also continues to operate onshore, with nine onshore drilling rigs. Most of these are deployed in northern Bra-zil in the State of Amazonas. QGOG has recently performed services for Shell and currently has a letter of intent to drill in Par-aguay in the near future for an independent exploration and production company called President Energy.

Interview with: Antonio Augusto de Queiroz Galvao, Chairman - Queiroz Galvao oil & gas

“Local content regulations will continue to promote and support development. It is very important not only to produce oil, but also to have the skilled workers who can build the rigs and operate offshore.”

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Antonio Augusto de Queiroz Galvao, CHAIRMAN - QUEIROZ GALVAO OIL & GAS

Also serving the oil and gas sector is Queiroz Galvao Exploração e Produção (QGEP), which is publicly traded on the São Paulo stock exchange since 2011. QGEP has a balanced and diversified port-folio, including assets in the production, development and exploratory phases, comprising 13 concessions spread along the Brazilian coast, of which half of them are operated by the Company.

Chief amongst QGEP’s main explor-atory assets is the Carcará Discovery in Block BM-S-8, located in the premium pre-salt area of the Santos Basin, where the Company owns a 10% stake and Petrobras is the operator. The Carcará Discovery rep-resents one of the largest columns of oil that have been encountered in the pre-salt of Brazil, and it has the potential to be a transformational discovery for the Com-pany.

In the development side, the highlight is Block BS-4, also located in the Santos Basin and encompasses the Atlanta and Oliva deep water fields. The Company is the operator of the Block with a 30% par-ticipating interest and is currently drilling the production wells in the Atlanta Field, where first oil is expected in late 2015 or early 2016.

QGEP also has a 45% stake in the Manati Field, the largest gas producing field in Brazil. This field, operated by Petro-bras, produces around 40,000 boe daily and is currently responsible for the Com-pany’s strong cash flow generation.

QGEP portfolio includes other blocks across Brazil. Most recently, the Company significantly expanded and diversified its exploration portfolio by acquiring eight blocks across five different basins in part-nership with major and independent oil companies in the ANP´s 11th bid round.

Our company is investing substantially in this sector, as it is important to our future.

EBR: How will Queiroz Galvão seek to expand market share across the markets in which it operates?ANTONIO AUGUSTO DE QUEIROZ GAL-VAO: We do not need to be No. 1 in our markets to be successful. If we get there through our continued hard work over time, that is absolutely fine. No other company, as I understand it, has been operating as QGOG has in Brazil for so many years – a noteworthy success in the Brazilian oil and gas segment. We do wish to expand inter-nationally as well, and this requires a con-tinued focus on delivering quality and safety.

What factors do you predict will affect the O&G sector in Brazil in the near future?

Brazil has a bright future. The resources in the pre-salt fields are substantial and pro-duction will increase rapidly. However, I do not think it is necessary for Brazil to become a large exporter of petroleum. I would rather see increased production over the next 10 years consumed internally, as that would signal the Brazilian economy had grown strongly, bringing better living con-ditions to the Brazilian people. Local con-tent regulations will continue to promote and support development. It is very impor-tant not only to produce oil, but also to have the skilled workers who can build the rigs and operate offshore, and this can hap-pen reasonably quickly.

Oil and gas resources will undoubtedly be central to Brazil’s future success.

“No other company, as I understand it, has been operating as QGOG has in Brazil for so many years – a noteworthy success in the Brazilian oil and gas segment.”

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BRAZIL JUNE 2014

INTERVIEW WITH:



Energyboardroom: The Polvo field just shipped its first commercial oil today. What does this mean for HRT; is it the first step on the road to recovery?NILO CHAGAS DE AZAMBUJA FILHO: The Polvo field is part of HRT’s diversifi-cation strategy and will allow HRT to move from being a non-operational com-pany to a fully-fledged operational. Becoming an operational is essential because it grants revenue to the com-pany. It is not possible to simply spend. With revenue, one can better manage expenses and strengthen the company’s ability to operate strategically. With Polvo, the first tasks undertaken will be to drill further wells, increasing produc-tivity and longevity of extraction on site. HRT’s is currently studying the field, and the company’s view is that it is possible to significantly lengthen the lifespan of the field. The revenue from this asset will facilitate the company’s further explora-tion efforts, or indeed allow us to acquire further assets.

Acquiring assets already producing is a costly, but low-risk strategy, particularly when compared to straight up explora-tion. The latter, however, is far cheaper. Both exploration and production are important, and a company must manage its human resources to balance these two interests. Working in one’s backyard, in unfamiliar territory, particularly when it comes to exploration is another way in which risk increases. As existing resources have already been extensively surveyed, this risk-return divergence between the two strategies is further exacerbated.

Since the beginning of HRT, our com-

pany’s expertise was in Brazil, Latin America and the South Atlantic. Our geo-scientists have worked across this area previously.

EBR: BW offshore has expressed their intent to purchase half of HRT’s 60 per-cent share of Polvo. Is working together with partners part of HRT’s risk reduc-tion strategy?NILO CHAGAS DE AZAMBUJA FILHO: The main point about Polvo is the fact it produces revenue for HRT. As the com-pany has several ventures in exploration currently, we have fiscal credits that can be deducted from taxes due to the gov-ernment. Exploration adds value to the fiscal balance the company receives from our production.

To reduce risk as well as to optimize operations are the two primary motiva-tions for this move. As BW is the operator of FPSOs, the company offers HRT syner-gies that can reduce costs. As two enti-ties working together, streamlining pro-duction processes is vital to maximize operations. In a mature field, efficient working practices are particularly impor-tant to maximize profit.

A further opportunity from having a

Interview with: Nilo Chagas de Azambuja Filho, CEO - HRT

“The Polvo field is part of HRT’s diversification strategy and will allow HRT to move from being a non-operational company to a fully-fledged operator.”

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partner is it allows more aggressive drilling of wells in the field, by reducing risk and sharing further investment. This is towards the aim of increasing production.

EBR: Commonly, the media talks of HRT and OGP (formerly OGX) as a pair. How-ever, there are some fundamental dif-ferences between the two companies, including the fact that HRT does not have debt. What would you tell inves-tors about what sets your company apart from OGP?NILO CHAGAS DE AZAMBUJA FILHO: That is a principle difference—HRT does not have debt. HRT had, at the end of 2013, around 88 million USD in ready cap-ital. In addition, HRT has purchased Polvo, and whilst some of this money will be redi-rected to pay for the field, some will be reinvested in the business. Establishing our enterprise as an operator makes a clear difference.

In the two companies’ production model too, the X Group owns its own ves-sels and FPSOs producing oil. This is very expensive. Working with BW offshore, our business operates at a lower cost. The cost per barrel for OGP must be far higher.

There are similarities between the com-panies, including the fact they have both been seeking to produce in Brazil’s frontier areas—HRT in the Solimões, for example. There the six discoveries of hydrocarbons happened after a campaigning of 11 wells. The return in these more risky areas is a matter of the likelihood of striking a resource. However, now with Polvo, HRT has the ability to sustain, or to weather the risk in drilling in frontier basins.

EBR: What, at the moment, is the state of HRT’s exploration efforts?NILO CHAGAS DE AZAMBUJA FILHO: Exploration is a long-term game, and plan-ning before any acquisition of data can take up to a year. After a data acquisition

sweep, information must also go through processing. Following this, rigs must be obtained. The whole journey can take five years.

Presently, HRT has three main assets. Solimões, Namibia, and Polvo. The strat-egy for the former is already ongoing. Rosneft is our new partner and we are moving forward with them and Petrobras seeking to monetize the discoveries in the Solimões Basin.

In Namibia, our company has just com-pleted three exploratory wells and is in the process of integrating the data. This will inform our future strategy there. HRT is confident that this country retains sig-nificant potential for oil and gas.

Tools and technologies for exploration are improving a great deal. However, fur-ther training is required to ensure that there are enough staff to operate these tools.

“A further opportunity from having a partner is it allows more aggressive drilling of wells in the field, by reducing risk and sharing further investment.”

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BRAZIL JUNE 2014

INTERVIEW WITH:

Adriano Novitsky, CEO Brazil Division subsea, Jose Jorge Araujo- SVP Latin America - Technip

Adriano Novitsky, CEO BRAZIL DIVISION SUBSEA, JOSE JORGE ARAUJO- SVP LATIN AMERICA - TECHNIP

Energyboardroom: On the 6th of Janu-ary, Technip received a contract for 100km of deep sea piping in the Santos Basin. What is Technip doing to ensure this project proceeds smoothly, or pro-duction strategies in place to ensure efficient delivery?ADRIANO NOVITSKY: This contact is in the Sapinhoá Norte field, one of the next major presalt fields to be developed off-shore Brazil. The award of this contract is the result of Technip’s longstanding focus on high level technologies. Four to five years ago Technip started to work towards excellence in equipment supply in the presalt arena. Petrobras acknowl-edged this high standard with the Sapin-hoá Norte field contract, amongst other contracts.

Technip was able to provide designs customized to the difficult conditions experienced on the presalt fields. In terms of production, starting in March the pipes used on Sapinhoá Norte will be the first through our new facility in Acu.

The decision to construct this plant was taken three years ago, and in Decem-ber 2012 construction was begun. ADRIANO NOVITSKY: This plant was conceived to produce for the presalt fields, including large pipes with diam-eters of up to 22 inch, of great weight, up to 500 tons which can then be loaded onto two vessels moored at the quay, on site.

In terms of the world, this plant is a world leader in producing flexible pipe.

EBR: This project uses gas injection top risers developed in France. What advan-tage does Technip’s international experi-ence and technological development process give the company here in Brazil?ADRIANO NOVITSKY: Flexible pipe tech-nology started to be developed in France, at the French Institute of Petroleum. His-torically, all Technip’s R&D for pipes has originated in France. Here in Brazil clients can at times be highly demanding meaning we have had to further push on our product development, allowing operation in deeper water depths and more exacting pressures for example.

Our company decided, five years ago to increase R&D capabilities in Brazil. The company has a technology center based across two sites at Vitoria, and also here in Rio de Janeiro. In Vitoria, there is a lab undertaking dynamic and static tests to evaluate the reaction of the pipe to condi-tions that might be found offshore. This pipe employs almost 70 staff. In Rio de Janeiro, another 50 engineers are doing R&D for specific Brazilian demands created by the presalt development. JOSE JORGE ARAUJO: the nucleus of all Technip’s presalt research is here in Brazil. As a group Technip is certainly a leader in the subject matter it works on. ADRIANO NOVITSKY: With particular ref-erence to the gas injection top risers, there are no other competitors who can build equipment of this standard as the risers use our Teta profile technology, which is now

Interview with: Adriano Novitsky, CEO Brazil Division subsea, Jose Jorge Araujo- SVP Latin America - Technip

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Adriano Novitsky, CEO BRAZIL DIVISION SUBSEA, JOSE JORGE ARAUJO- SVP LATIN AMERICA - TECHNIP

being deployed in the presalt domain.J.A- Technip estimates itself to be five

years ahead of the competition. However, there is no room for complacency- continu-ous improvement is needed.

EBR: How has Technip coped with increasing capacity requirements for pre-salt equipment?JOSE JORGE ARAUJO: Since 2003, when Technip was working on the P- 52, Brazil’s first locally built semi-submersible, the company has continuously been working on one large project after another. The P-52 was followed by the P-51, then the P-56. These are all fully operational today. P-58 and P-62 occurred after that, and Technip is assisting Petrobras achieve these plat-form’s first oil with engineering throughout the production process. Last year the P-76 platform became the most recent platform contract.

Technip also envisages more leased drill-ing units in the future, and will seek to sup-ply products and services where possible.

The units that Technip has worked on, as listed above, have all seen increasing proportions of their construction fall under local content requirements (LCRs). This has happened alongside the reigniting of Bra-zil’s maritime industries and the reinvigora-tion of the countries supply chain. Our busi-ness is seeking to reinforce its abilities to construct, engineer and procurement with a particular emphasis on forcing down costs.

EBR: Brazil’s offshore ambitions can be forwarded by many technologies, but subsea production is one area causing particular excitement. What can Technip do to forward this manner of produc-tion?There is a program, together with CENPES, developing a new oil separator, for subsea use; this is the future. Using centrifuges, this

can separate oil from water effectively, increasing the efficacy and efficiency of subsea production. Around the world there are 60 initiatives pushing the boundaries of subsea production- 15 of these are in Brazil, led by Petrobras. Subsea modular produc-tion, in this respect, is led by Brazil’s giant.

EBR: Last year, Technip was hailed as the ‘best employer’ in Brazil. What factors create this positive work environment here in Brazil?ADRIANO NOVITSKY: Technip has been growing a great deal, and this creates many opportunities for staff, for promotion and also for new moves and openings- staff can find new, challenging and interesting roles. It is important to create a good team spirit and ambiance at work; these factors all ensure staff stay motivated. JOSE JORGE ARAUJO: Technip has a young engineer of the future program which the company is very proud of. It is a very selective opportunity- around 20 aspir-ing engineers are brought into the program each year. ADRIANO NOVITSKY: This offers these young engineers a window to all sections of the business, in the factory and offshore, on-board of one of our installation vessels for example.JOSE JORGE ARAUJO: The program allows the trainees access to Technip’s interna-tional business- young engineers can enter positions in any of the 49 countries that the business works in. This is highly encourag-ing for employees early in their career. Technip also offers opportunities to all- the company has a high representation of females in management positions. For this reason, anyone can progress with Technip if they should availability.

40

BRAZIL JUNE 2014

INTERVIEW WITH:

Nelson Leite, President - FMC Technologies do Brasil

Nelson Leite, PRESIDENT - FMC TECHNOLOGIES DO BRASIL

Energyboardroom: Could you tell us about FMC Technologies’ priorities here in Brazil, and particularly with Petrobras’ investment of $270 billion before 2017, what Brazil means to FMC Technologies- what hopes do you have for this market?NELSON LEITE: FMC Technologies in Brazil has a long history; the first contract that the company signed here was in 1961. Now, FMC Technologies is a market leader and has a strong presence in the country. This is demonstrated physically, by the company’s investments here, such as our technology centre and our plant capacity. Brazil is a strategic priority, which is why the company has committed sufficient investment to ensure its growth in the Brazilian market. -. Brazil is a unique location, because of the scale of the pre-salt resource and the technology required to realize this opportunity; ultradeep water challenges make advanced solu-tions a necessity.

EBR: Could you give us some further details as to what FMC Technologies is doing to advance the knowledge base offshore- what are key technologies for the company?NELSON LEITE: FMC Technologies has a contract with Petrobras to develop spe-cific technologies, and is pursuing these technologies in line with the companies longer term vision at our technology cen-tre. This vision is principally focused on moving engineering systems from above the sea to beneath it- subsea systems are our priority.

Subsea systems were born in Brazil-

there was a great deal of technology developed here in the 1970’s- and FMC Technologies seeks to demonstrate that this legacy of excellence continues. With the opportunities offshore, there are sig-nificant openings for mounting a greater deal of equipment on the seabed, which should make operations more efficient and cost effective.

EBR: How important is technology facilitating advanced oil recovery to FMC Technologies’ ambitions?NELSON LEITE: There are green-field and brown-field sites and the latter is far more difficult to produce oil from, fre-quently involving filtering a great deal of water from the oil reserves. The future of the fields depends on producing more oil in fields containing an ever larger store of water. It is one reason why pro-ducing cost efficient separation technol-ogy, parting water from oil, is so impor-tant. FMC Technologies is developing such technology together with Petrobras. Along with boosting extraction of oil, a number of technologies are central to subsea works. Pumping, and subsea con-struction techniques are very important to advanced oil recovery- they should be seen as key areas for investment in this respect.

EBR: Is technology the limiting factor on Brazilian offshore production? What other factors stand in the way of real-izing Brazil’s offshore targets?NELSON LEITE: New technology is critical to maintaining growth, it is clear. However, at the moment, Brazil’s priorities should

Interview with: Nelson Leite, President - FMC Technologies do Brasil

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BRAZIL JUNE 2014

Nelson Leite, PRESIDENT - FMC TECHNOLOGIES DO BRASIL

be to start production from the existing discoveries and increase production from established wells. Technology is a support, and can assist this process, but key to Bra-zil’s fortunes are increasing the areas under auction, attracting further investment.

At the moment Petrobras is a key player in realizing these factors but IOCs offer further investment as well as novel experi-ence and I would argue that encouraging the participation of more IOCs in the Bra-zilian market would be of great benefit in realizing the country’s ambitions for pro-duction. For example, I think the involve-ment of IOCs together with Petrobras on the Libra field is an excellent development, a strong consortium because all these players will bring their own experiences to the table; new technologies can and will assist them in achieving their aims.

EBR: Do you consider that participation in the market is growing too slowly; what can be done to make this market more attractive for IOC’s?NELSON LEITE: For sure, something has to be done;. Brazil must be create the commercial support system that ensures Brazilian opportunities are appetizing, not just palatable for these international play-ers.

The supply chain is another key chal-lenge for Brazilian offshore hopes. The supply chain has to grow, in a manner that demonstrates that it can provide required parts and services safely, at low cost, to high quality and on time.

EBR: Petrobras are talking up the Brazil-ian market, and certainly the opportu-nity is there. But for international play-ers, do you think there is a gap between expectations and the reality they face?NELSON LEITE: For sure some players are far engaged with the pre-salt than others. How policy encourages the rate of uptake of the presalt opportunities is

a question which hinges on attracting investment, which in turn influences the capacity of the industry to develop within the hoped for timescale. If I were to choose two things which need to be improved to ensure that success can be attained, it would be the supply chain, and human resources. Providing and developing people and the supply chain quickly enough is key to accessing Brazil’s resources in their entirety.

EBR: Would you agree with the state-ment that local industries do not com-pete with international businesses in terms of quality?NELSON LEITE: I do not agree. It is fre-quently difficult to find a good supplier- not just in Brazil. I would also point out that Brazil now excels in several indus-tries, such as in the automotive and aero-nautical industries. Bringing skills and tal-ents like those developed in these enterprises to the oil and gas industry is a notable but not insurmountable chal-lenge for developing Brazil’s industrial capacities. There are many small suppli-ers in Brazil, and their contribution to the diversity and availability of parts is to be welcomed in this market; one further pos-itive development however would be if they are prepared to deliver in high scale, as well as if more complete units, final products were produced. This would reduce the number of operations that are required to receive a desired final unit, ready for integration into a production chain. Having more advanced production and financing schemes for goods would be a great boon for Brazilian industry.

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BRAZIL JUNE 2014

INTERVIEW WITH:

Stephane Dezaunay, Country Manager - PGS

Stephane Dezaunay, COUNTRY MANAGER - PGS

Energyboardroom: After five years with no licensing rounds, ANP organizes three in 2013. How relieved is the geophysics industry in Brazil? STEPHANE DEZAUNAY: Indeed the past five years have been tough for the industry. In order to generate business and cover blocks, we need licensing rounds. It impacted multi-client acquisitions quite sig-nificantly. The industry needs the potential of the license round to build its libraries.Despite the challenging circumstances, PGS was awarded a very large survey in 2008, the largest HD4D ever shot in the world, which ran until 2012. The survey was conducted by the Ramform Sovereign under contract with Petrobras, and covered the large pre-salt areas.

The vessel towed 113 km of streamers in the water and covered a distance equaling five times around the globe in four years.

EBR: Did PSG also look at bringing for-ward new business models in the way that the company deals with Petrobras and the Brazilian market? STEPHANE DEZAUNAY: The lack of bids and exploration made us diversify into the reservoir side. PGS set up a group called Global Reservoir Monitoring Services. Due to the challenging times for seismic, we felt we needed to diversify and invest in a tech-nology centre to enable us to work on res-ervoir & monitoring services. We wanted to make sure that we can answer our clients’ questions and demand; and our clients want to optimize their reservoir, even if they are not executing a large exploratory campaign.

Last May’s licensing round saw great

interest from majors & supermajors such as BG, Total, BP, Shell, and even ExxonMobil came back to Brazil. Is it still all Petrobras for the seismic industry in Brazil or do you see a serious market developing alongside Petrobras?

Indeed companies like Statoil, Repsol, BG, and Shell have been very active over the past years. And of course OGX came up very strongly in the previous bidding round in 2008. This changed the market dynamic, although Petrobras of course is still the big actor.

Now, with the 11Th round, some new players came in and invested in new areas, especially the equatorial margin. Total, BG, and Statoil have been very successful. Petrobras was still the best investor, although interestingly not so much as oper-ator but rather as partner.

It obviously creates a need for new seis-mic. Seismic is an old business, but the

‘Indeed the past five years have been tough for the industry. In order to generate business and cover blocks, we need licensing rounds. It impacted multi-client acquisitions quite significantly. The industry needs the potential of the license round to build its libraries.

Interview with: Stephane Dezaunay, Country Manager - PGS

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BRAZIL JUNE 2014

Stephane Dezaunay, COUNTRY MANAGER - PGS

technology evolve quickly. For example, there is a lack of 3D seismic at the equato-rial margin. There is a lot of 2D seismic with long lines and not very good definition, and some 3D but shot between 2000 and 2005.

PGS launched the GeoStreamer in 2007. This is a broadband solution: you widen your frequency band so you can image the deeper target at the same time. At first, the industry condemned the idea as crazy, but now, six years down the line, we see specific tenders coming out asking for broadband solutions.

It was interesting to see how the industry perception changed now that PGS has exe-cuted several Geostreamer projects.

EBR: How far is PGS ahead of key com-petitors CGG and Westerngeco in the Brazilian context?STEPHANE DEZAUNAY: In Brazil, the mar-ket has been managed by three companies in Brazil: PGS, CGG, and Westerngeco. The other actors have been quite inconsistent. The Brazilian market has been a mutli-client market for many years. This reduced the market to three companies for multi-client. The market is quite equally divided between CGG and PGS, and Westerngeco following on short distance. I would estimate 40 per-cent for both PGS and CGG, and 20 percent for Westerngeco and others.

On the marine contract, we had quite some great projects with Petrobras and Repsol.

EBR: Looking at the development of PGS in the coming years, where do you want to take the operations in the coming five years?STEPHANE DEZAUNAY: Next year PGS will celebrate its 20-year anniversary in Brazil, which coincides with one of the largest exploratory campaigns in Brazil taking off.

The first of three licensing rounds has successfully taken place in May this year, which is a great sign also as a precursor for

more frequent bid rounds in the future. We have seen some very quick results

from this round, with new players coming into the equatorial margin. It is a very chal-lenging area, nothing like Campos or San-tos Basins where the industry knows how to play the game and the infrastructure has been built up.

For the pre-salt, of course we will have to look at the first tender round, but we believe that there will be a need after Libra to explore other areas. It is interesting for PGS as it means that business will be more continuous and we can forecast better.

We have also had the possibility to start working on mature fields, which will remain a focus going forward as production from some fields in the Campos Basin is starting to slow down and will start decreasing soon. Companies in Brazil are actually keen to use new techniques. PGS has ventured into new ways of executing seismic. Before, shooting seismic was done 3D. Now we are seeing new designs of seismic to get better illumination of the subsurface.

PGS is continuously challenging conven-tional industry wisdom and merits, both globally and in Brazil.

‘PGS launched the GeoStreamer in 2007. This is a broadband solution: you widen your frequency band so you can image the deeper target at the same time. At first, the industry condemned the idea as crazy, but now, six years down the line, we see specific tenders coming out asking for broadband solutions.’

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BRAZIL JUNE 2014

INTERVIEW WITH:

Luiz Braga, Ph.D, VP, Geomarket Director, Latin America - CGG

Luiz Braga, PH.D, VP, GEOMARKET DIRECTOR, LATIN AMERICA - CGG

Energyboardroom: How does the full geoscience portfolio of CGG’s services reduce operators’ risk, and how do your services make exploration more certain, production more efficient?LUIZ BRAGA: By now being a fully inte-grated geoscience group we have a strong portfolio of products and services that can add value at every stage in the Exploration & Production workflow. In particular, we have a new geological and geophysical consulting services organization, GeoCon-sulting, which brings together all of our geological and seismic reservoir expertise and includes our unique line of Robertson geoscience consulting services and multi-client products. Robertson represents 250+ geologists who have unique knowl-edge of basins around the world and mar-ket a rich and comprehensive library of complementary datasets ranging from geological reports, geochemistry and hydrocarbon seep databases to well data grav-mag and seismic surveys. As well as giving our clients a competitive edge, this powerful planning tool also helps CGG select the most prospective new areas and best survey program and parameters for its multi-client business.

The integration of seismic and non-seis-mic services is therefore a unique differ-entiator for us within the market that allows us to better understand and serve our cus-tomers. This is because when we look at the remote observations we make of the reservoir with geophysics, the interpreta-tion of these results has to be correlated with the geology, the reservoir rock itself, which is the ground truth. The more we

understand of the geology the more we can constrain our geophysical predictions to get as close to the reality as we can. This is powerful knowledge which will help us design better geophysical surveys and provide more accurate results for reservoir modeling. It allows us to extend the value chain of geophysics and seismic further in the E&P cycle.

One stop-shop operations are a key tool for making sure our customers receive services they are fully happy with. Being able to offer multiple technologies and solutions tailored to customer needs is highly important. Managing to deliver sophisticated solutions that work in a com-plementary fashion is a challenging under-taking; it is a process that must be con-tinually developed as technologies progress, yet one which is essential to delivering value-adding customer ser-vices.

This broad technology portfolio allows customers to acquire data that suits their needs, both for finding oil, and also mak-ing sure they extract the maximum yield from a well. On the non-seismic side, par-ticularly with regard to airborne geophys-

“Being a fully integrated geoscience group we have a strong portfolio of products and services that can add value at every stage in the Exploration & Production workflow”

Interview with: Luiz Braga, Ph.D, VP, Geomarket Director, Latin America - CGG

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BRAZIL JUNE 2014

Luiz Braga, PH.D, VP, GEOMARKET DIRECTOR, LATIN AMERICA - CGG

ics, CGG has a leading range of integrated services. The ability to tailor our services to customers’ needs, delivering precisely the solution required for the challenge faced means that our customers receive accurate data in the format they require. The more information they have, the less risk they face.

EBR: Petrobras has a huge share of the market. With regard to Petrobras, and the multi-client model, has the domi-nance of Petrobras in the Brazilian oil and gas market affected how CGG approaches this model?LUIZ BRAGA: It has a major impact. We developed our multi-client library in line with Petrobras’ exploration plans.

Interestingly enough, Petrobras’ inter-ests were not the most significant factor in the hopes of geophysical surveying companies regarding the last licensing rounds. In any case, through their partner-ships, Petrobas have an impact on all oper-ators working in Brazil. That being said, Petrobras has had a strong influence on our success in Brazil. CGG has been work-ing in Brazil for a long time, and close cooperation with Petrobras over that period has been a great tool in validating CGG’s delivery of technology to the mar-ket.

Petrobras are technology leaders off-shore; when they state that a technology is useful, other operators listen. This has been very positive for CGG.

EBR: What new technologies is CGG developing currently, in particular with regard to the Brazilian context, and what technological imperatives are forc-ing your company forwards at the moment?LUIZ BRAGA: CGG’s Broadseis and broad-band technologies are still so new that I do not consider that clients have as yet

extracted the full value from these tools. This is a current focus for our clients.

As to the future, clients will seek further illumination, clarity and detail in the data. Currently CGG is in a partnership with Petrobras, and imaging and data produc-tion is a clear emphasis for research. Very importantly, we have our Technology Cen-ter in Rio, which is largely dedicated to Petrobras yet also open to other clients. Here our local experts, who are experi-enced in processing Brazilian data and benefit from the backup of CGG’s world-leading global R&D network, are working to solve technological questions in a way that is completely dedicated to the local challenges, conditions and local clients.

Offshore, CGG is pioneering new tech-nologies as well - clearly with Brazil’s sig-nificant focus on this area for new devel-opment, companies such as CGG must pay attention to this sector as well. Ensuring operators are able to fully understand their wells as production is ongoing will need a degree of emphasis - and CGG will seek to address this requirement.

“CGG has a leading range of integrated services. The ability to tailor our services to customers’ needs, delivering precisely the solution required for the challenge faced means that our customers receive accurate data in the format they require.”

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BRAZIL JUNE 2014

INTERVIEW WITH:

Ronaldo M. De Oliveira, Commercial Director - CBO

Ronaldo M. De Oliveira, COMMERCIAL DIRECTOR - CBO

Energyboardroom: CBO is in a period of transition. Can you update us as to the prelude to this phase of new own-ership of the company?RONALDO M. DE OLIVEIRA: CBO is a 100 percent Brazilian offshore company, founded in 1978. Since then, CBO has grown its fleet, with a particularly intense period of ship building beginning in 1999 that aimed to replace our older vessels, thereby rejuvenating our fleet. CBO has sold all its older vessels and the construc-tion program will have created 21 vessels in total, the last of which will be delivered in April 2014.

The average age of the fleet is five to six years old, and the vessels work primar-ily with Petrobras who hold about 80 per-cent of CBO’s contracts. The other con-tracts are with Statoil.

EBR: Previously, you expressed a wish to bolster CBOs ‘self-sufficiency’ in shipbuilding and aim for higher value products, and higher technological solutions. At that time, there was also some interest in acquiring CBO. Was the pursuit of these characteristics the reason CBO was attractive for acquisi-tion?RONALDO M. DE OLIVEIRA: First, the fleet is very new—around five years old on average. CBO is also proud to state that the company was elected by Petro-bras as the premier company in terms of Health, Safety, Environmental and Quality (HSEQ). Day by day, CBO’s operations are very well handled, a fact that was sure to have been analyzed by potential buy-ers before any purchase offer was made.

CBO was a perfect private equity com-pany to seek the acquisition of before it was bought out.

EBR: What is the current status of your operations?RONALDO M. DE OLIVEIRA: All our ves-sels are currently under contract, and these obligations are being fulfilled. The Arpoador, launched in the latter half of 2013, for example, is already under con-tract with Petrobras. CBO had partici-pated in a bidding round three years ago, winning four contracts. CBO’s new own-ers are, I am sure, very pleased that all our vessels are currently working and with good performance.

EBR: CBO’s fleet is very new. What are the tangible features of your ships and facilities that best represent the inno-vative face of your company?RONALDO M. DE OLIVEIRA: Of course, we work closely together with the ship designers and have previously used the Ulstein x-bow design to produce our ships. We moved to utilizing Ulstein con-cepts as we had a positive experience with their designers. Furthermore, CBO has a significant emphasis on improving the technical capabilities of its staff, pro-

“CBO is also proud to state that the company was elected by Petrobras as the premier company in terms of Health, Safety, Environmental and Quality (HSEQ).”

Interview with: Ronaldo M. De Oliveira, Commercial Director - CBO

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BRAZIL JUNE 2014

Ronaldo M. De Oliveira, COMMERCIAL DIRECTOR - CBO

moting training of its crew, which allows them to operate more varied equipment including diesel electric vessels. A work-ing arrangement with WEG allows CBO to develop these diesel electric vessels, which CBO considers to be an important development.

EBR: CBO’s ships, ship designs and shipyards seem to have an excellent reputation. How does the wider Brazil-ian shipbuilding industry stand on an international level, however?RONALDO M. DE OLIVEIRA: It is not easy. The first comparison ship owners assess is price, yet quality for shipyards is vital to improve one’s reputation and brand. In China, potential buyers have been frightened away by the perceived inadequacies with regard to the level of quality in Chinese shipyards. However, the Chinese have been gaining skills and are rapidly improving their finalized prod-uct. They have a big advantage with regard to the price of labor, particularly with regard to Brazil, where the price of labor is exceptionally high. The cost in China for this reason can be a third less.

In Brazil, and particularly at CBO we do produce high quality ships—further efforts to reduce costs, however, will have to be made. Local content requirements are another challenger. The new law from the ANP requires over 50 percent of local content to be included in ships that are built in Brazil, which restricts use of Chi-nese built vessels for example.

EBR: Oceana, who recently acquired CBO, operates a similar business model to CBO. What are the synergies between the companies?RONALDO M. DE OLIVEIRA: Oceana is building a shipyard in Santa Catarina. The intention is to build the vessels at Oceana’s larger shipyard, once com-pleted, and maintain them at CBO’s exist-

ing site. At the moment, CBO is already cutting plates here for Oceana’s facility. In that sense, these two shipyards will complement each other greatly, as there is a lack of drydocks for repair of vessels at the moment. With a larger fleet, it makes sense to have a drydock available for maintenance operations.

The companies will merge completely. As Oceana does not yet have a full team for their company, the experienced staff at CBO will help Oceana develop their end of the company. CBO is an estab-lished ship owner and its reputation and capabilities will be of great use to Oceana in making sure the CBO brand, which will likely encompass both businesses, con-tinues to stay strong.

EBR: Where do you see the wider OSV market in five years’ time?RONALDO M. DE OLIVEIRA: The new owners of CBO are clearly seeking to increase the number of vessels in the fleet and increase the depth and breadth of operations. Next year are the elections in Brazil, and the political ramifications of this event will be massive. Petrobras is, at the moment, restricted by the Federal Government action in the gasoline price—a fact that reduces its capacity to invest elsewhere. Petrobras is essential to the future of Brazilian prospects for devel-oping its offshore resources, and is also essential for the Oil & Gas industry.

“BO has a significant emphasis on improving the technical capabilities of its staff, promoting training of its crew, which allows them to operate more varied equipment including diesel electric vessels.”

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BRAZIL JUNE 2014

INTERVIEW WITH:

João Ferraz, CEO - Sete Brasil

João Ferraz, CEO - SETE BRASIL

Energyboardroom: On December 23rd, BNDES approved a USD 10 billion pack-age for Sete Brasil. What were the con-ditions attached to the receipt of these funds?JOÃO FERRAZ: BNDES (National Bank for Economic and Social Development) is a finance agency in Brazil created, as its name suggests, to support the develop-ment of the country. For this reason, it is quite natural for BNDES to advance such an amount of credit to Sete Brasil, because our company will create many jobs and stimulate a great many new industrial capabilities in Brazil. Sete Brasil’s order book will boost Brazilian shipyards and consists of 29 ultra-deep water auto-mated design type rigs, capable of oper-ating in the most difficult of conditions. These rigs will also utilize 55 – 65 percent locally provided products and services, and BNDES will advance 80 percent of the finance due to this local content.

Sete Brasil was created with a business model that sees significant credit risk mit-igation, and for this reason, given that our company will fuel whole sections of the economy, it was always entirely likely that BNDES would support our efforts in this manner.

EBR: Sete Brasil was also trying to obtain finance from export credit agen-cies and commercial banks. What are the features of your company that make it attractive for such institutions to invest with Sete Brasil?JOÃO FERRAZ: So far, Sete Brasil has acquired finance for 75 percent of the company’s total expected CAPEX through BNDES, FMM (Merchant Marine Fund) and from further equity. Sete Brasil has also accessed finance from commercial

banks, and the United Kingdom’s export credit agency. Our company is still look-ing for finance for around 19 percent of the company’s final CAPEX. This is pre-dicted to come from further export credit agencies. Whilst Sete Brasil generates a huge deal of local content, around 40 per-cent of goods and services will come from international suppliers. This makes Sete Brasil eligible to raise finance from the UK, Norway, Germany, and the US, for example. As large-scale suppliers in these countries will be eager to satisfy Brazilian demand, Sete Brasil looks like it is able to raise export credit that will ease the com-pany’s fiscal burden in this way.

EBR: What is the reason that Sete Bra-sil still constructs part of its facilities abroad, when so much of its business model seems to support local content?JOÃO FERRAZ: This is part of our com-pany’s strategy to minimize delays. The type of rig designs being built, as men-tioned, are ultra-deep water drilling rigs. Constructing these designs for the first time in Brazil has some risk associated with it. To assume that the local yards have the capabilities to build these rigs straight off would be quite naïve. The first rigs, with the lower levels of local content associated with them will split construc-tion between local yards and international construction sites. Initially, Brazilian yards will focus on the simpler elements of the construction process, and over time assume more responsibility for ever more technical parts of the rigs. This strategy will reduce risks of delays, as international construction companies can use their experience to deliver technical elements of the rigs on time whilst simultaneously expediting the learning process here in

Interview with: João Ferraz, CEO - Sete Brasil

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BRAZIL JUNE 2014

João Ferraz, CEO - SETE BRASIL

Brazil as shipyards and their staff gain hands on experience.

The first rigs will include 55 percent local content, and the later builds closer to 65 percent.

EBR: Whilst Sete Brasil will own rigs, the units will be operated indepen-dently by the likes of Queiroz Galvao, for example. With Sete Brasil investing so much, why not take the final step and bring operations in-house?JOÃO FERRAZ: We are not drillers—Sete Brasil is an equity investment company, and does not desire in any way to become a drilling company. Sete Brasil and its shareholders know that the pre-salt domain is a huge resource, and Petrobras, for one, will require a huge amount of everything in a very short period of time. Service providers operating in Brazil, such as drillers, will have to initiate a very fast track increase in capacity, and without assistance or stimulation to grow, then indeed all of Petrobras’ service providers would be likely to fall behind the behe-moth’s demands for equipment and ser-vices.

Sete Brasil comes not to replace exist-ing players, but to support them. It comes to offer its strong balance sheet and assets to help service companies who otherwise could not keep pace with the requirements of Petrobras. In this way, a joint venture business model is clearly advantageous to both parties and offers a route to rapidly providing the capacity to extract Brazil’s oil and gas resources.

EBR: The majority of Sete Brasil’s rigs will work for Petrobras. What are the implications for your company in work-ing so exclusively with one client?JOÃO FERRAZ: For a company to have only one client is typically not a good thing. However, knowing the capabilities of Petrobras and the strength of that com-

pany means it is less “The pre-salt finds are obviously the most important devel-opment in the Brazilian market at the moment- accessing them is the foremost ambition of Repsol Sinopec.” risky to work for Brazil’s giant. Anyone who wants to operate in Brazil must work for Petro-bras. Other companies extracting oil in Brazil, whilst they are very strong and reli-able companies, are still minute com-pared to Petrobras, and cover a limited proportion of the market share. Any ser-vice providers who wish to operate in Bra-zil must bear in mind Petrobras’ enormous share of the market.

The best way for Sete Brasil to grow is to work for Petrobras.

“The pre-salt finds are obviously the most important development in the Brazilian market at the moment- accessing them is the foremost ambition of Repsol Sinopec.”

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BRAZIL JUNE 2014

INTERVIEW WITH:

Renata Pereira, Executive Director - BRASCO

Renata Pereira, EXECUTIVE DIRECTOR - BRASCO

Energyboardroom: What is Brasco doing to mitigate any bottlenecks created by the quality of Brazilian infrastructure or transport delays be it over sea, by road or by air?RENATA PEREIRA: BRASCO’s geographic reach is one of the company’s principle advantages as our enterprise is well posi-tioned across Brazil’s provinces having the base here in Guanabara Bay and sites in San Luis (since 2008) which is another loca-tion well placed to serve new oilfield devel-opments.

Another location is in Salvador, in Bahia. BRASCO is constantly monitoring the mar-ket, and anticipating where new openings will appear. The company is already posi-tioning itself to pick up the greatest market share from the 11th round of auctions. It is a manner of business drive, and having the proper competencies to deal with customer demands as they arise.

EBR: Briclog was acquired by BRASCO last year in July, tripling the company’s capacity to service vessels in this area. What’s the real strategy behind expand-ing your physical base into Rio de Janeiro?RENATA PEREIRA: The Guanabara Bay is of high strategic importance in terms of location for its ability to support presalt developments, both in the Campos and Santos basins, especially the areas currently under development. Brasco already had a good position, here in Niteroi complete with three berths which were already oper-ating at full capacity- indeed all indications were of demand continuing to grow in terms of operations serving our existing cli-

entele, some examples of whom are Statoil, Shell, Anadarko, Chevron and Total. Brasco needed to find further opportunities to grow, and did so through this new acquisi-tion, which is now titled BRASCO Caju.

The company is now investing around 100 million BRL in this terminal and the company’s expectation is for growth driven by our core competencies. BRASCO builds all its customer value proposals on top of a record of excellence in Health, Safety and Environment (HSE) orientated work prac-tices. Briclog will allow BRASCO to grow and further demonstrate high standard work in this manner.

EBR: How do your three bases in the Guanabara Bay support each other- how do their operations compliment the work of the others?RENATA PEREIRA: These sites collectively allow for much more efficient use of over-head resources. The sites provide each other with contingency options, in the event of an unforeseen setback. In princi-pal, clients will be served by single sites, and the new facilities we have will be used to attract and serve new customers.

“BRASCO invests strongly in technology, such as an offshore logistics platform, which monitors the full supply chain, from a unit’s position in a warehouse to its point of use.”

Interview with: Renata Pereira, Executive Director - BRASCO

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BRAZIL JUNE 2014

Renata Pereira, EXECUTIVE DIRECTOR - BRASCO

EBR: Statoil, Chevron, Anadarko, Petro-bras are amongst your biggest custom-ers. What solutions are these customers seeking? How is Brasco best placed to address these demands? What is your strategy for building market share and securing relationships with current cus-tomers?RENATA PEREIRA: These customers demand HSE excellence in the services they receive. BRASCO stands out in its perfor-mance in this vein. Ultimately, all BRASCO’s services, be it logistics, material handling or loading/unloading vessels must be per-formed with HSE excellence. That is a top priority, and everything comes from that; BRASCO’s management style is built to deliver this. This means reliability, safety and security, accredited through all the benchmarking standards, are apparent throughout BRASCO’s operations, which greatly reinforces our long term relation-ships with our clients. BRASCO, with a diverse client list has ensured that as a com-pany, its best practices reflect the needs of all its clients.

To maintain this, BRASCO continually invests in new innovative working practices, for example at the moment the company is putting a great deal of effort into develop-ing an environmental services operation, from tank cleaning to paperwork manage-ment, which is crucial to companies seeking to continue their operations. Brasco retains a fully equipped team to ensure that this becomes a benchmark product.

Furthermore, BRASCO invests strongly in technology, such as an offshore logistics platform, which monitors the full supply chain, from a unit’s position in a warehouse to its point of use. Radio tags enable con-stant monitoring of the location of any unit in Brasco’s care. This has increased Brasco’s efficiency from around 70 to 90 percent within the last two years. This has cascad-ing advantages, allowing us to have a faster

turnaround of visitors in our quay, and thus serve more customers.

Currently around six percent of working hours at BRASCO are dedicated to training, and this care of our staff means our employee turnover is less than three per-cent.

The pillars that BRASCO’s business plan stand on are: investment in human resources, investment in technology, and investment in environmental services. Together, prioritizing these features of BRASCO means we will continue to be the preferred partner of choice.

EBR: Price is certainly one of Petrobras’ key concerns in developing contracts; another element we have heard is impor-tant to them is technological capacities. What are the technical capabilities that BRASCO offers that set the company apart from competitors?RENATA PEREIRA: BRASCO’s terminals see constant investment. Last year, we acquired new cranes and we have a robust mainte-nance plan to ensure smooth uninterrupted operations. In the last two years, we have invested 20 million BRL in maintenance alone. This is part of BRASCO’s belief that our facilities, here at our private terminal, should be state of the art.

“Currently around six percent of working hours at BRASCO are dedicated to training, and this care of our staff means our employee turnover is less than three percent.”

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BRAZIL JUNE 2014

Company index

Abespetro .............................................10

ABS ................................................12, 13

Aker Solutions Brazil ...........................11

Asgaard ..........................................18, 21

Barra Energia ..............................7, 23, 26

Brasco .......................................17, 50, 51

Bravante ...............................................21

Brazilian Petroleum, Gas and Biofuels

Institute (IBP) ........................7, 14, 22, 23

CENPES .............................12, 20, 28, 29

CGG ..............................16, 17, 43, 44, 45

Exterran ................................................16

FMC Technologies ..............20, 21, 29, 40

Valerus Geogas .........................14, 16, 17

GE oil & gas .........................................12

Gran Energia.........................................12

GTM ................................................17, 18

HRT ...........................7, 10, 16, 23, 36, 37

Intermoor do Brasil .............................10

Kongsberg Oil and Gas Technologies ..18

Oilfinder .........................................17, 21

Olympic Maritima ...................................8

Petrobras ........... 6, 14, 16, 17, 18, 24, 25

Petrolink .........................................10, 16

PGS .................................8, 12, 13, 42, 43

Queiroz Galvao .........5, 14, 21, 23, 34, 35

Repsol Sinopec. ..................19, 32, 33, 49

SBM Offshore .........................................9

Sete ..............................19, 20, 21, 48, 49

Sintef ..............................................20, 21

Sotreq ...................................................21

Technip .....................................19, 38, 39

Total E&P do Brasil .....7, 8, 10, 21, 30, 31

Westshore do Brazil .............................18

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BRAZIL JUNE 2014

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Documents

Inside Oil & Gas Brazil report 2014