Diversification trends in Brazil’s upstream sector

What is Brazil’s role in the FPSO market?
Considering the market scale, Brazil cannot compete with China for hull conversion or fabrication, so the Brazilian industry will focus on topsides, specifically modules and module integration. A number of vessels are also working in Brazil either as production, drilling or special service vessels that need repairs.
In the short term, Brazilian shipyards will continue to face tough competition from China because most of our potential clients are operators such as Modec, SBM and Teekay. These companies bid for Petrobras contracts on a very competitive basis. As such, they will have to look after Chinese shipyards, with no consideration whatsoever of local content regulations.

How is the Brazilian upstream sector likely to evolve?
Until now, almost 100% of the industry’s construction contracts are done for Petrobras, the major operator offshore Brazil. This fact creates a situation where there are a limited number of projects because of the limits of Petrobras’ financial and managerial capacity. Brazil will continue to have only one main operator, which is Petrobras, but I am confident that in the mid-to-long term, business will thrive because there will be many operators here.
I see opportunities in the mature field arena, especially in the Campos area. The country is confident that big operators such as Exxon, Shell and Equinor will be successful in their campaigns because of the areas they acquired, which are very prolific. This will help develop a much stronger market and, if we continue with this strategy under the current and next governments, Brazil’s bidding rounds will continue and attract a number of other big operators, diversifying the market.
Petrobras will not be able to eternally rely on the kinds of contracts it has with companies such as Modec and SBM. Most big operators will need to have their own units because leasing is more expensive and riskier than owning. With the present situation, Petrobras needs to do that because it has a huge debt and is now restructuring its financials. I hope that by the beginning of 2019, the company will be in a better situation to finance its own projects.

What has been Petrobras’ approach in its mature fields?
Petrobras has to divest from mature fields, both onshore and offshore. The state of Bahia was the birthplace of oil and gas in Brazil and it has more than 1,000 oil wells, most of which are operated by Petrobras.
The wells in Bahia are now producing maybe 32,000 bopd, whereas just one pre-salt well produces more than that. Petrobras cannot keep those Bahia wells because it is more expensive for the company. Now it is beginning to sell small clusters, and this will develop a new business for many different companies of various sizes.

Has the liberalisation of the Brazilian oil and gas industry been successful?
In the boom of 1997, all the big companies came to Brazil because Petrobras’ monopoly ended and we started to have bidding rounds. However, the risk was much higher than it is today because the areas auctioned then were not as prolific as the pre-salt, where one well can produce 35,000-38,000 bopd. In Round 0, Petrobras had the right to choose acreage and it took all the good areas. Many companies came here and drilled unsuccessfully, and that wasn’t good.
Now I am confident that it will be different. Brazil is on the right path and has a very competent agency: the ANP. The mood of the government is to attract investment and open up the sector. Before, the Brazilian government thought that Petrobras could be the vector of development, since it was big and competitive, but Petrobras also has limits. The only way is to develop a broader industry with different operators, not only upstream, but also downstream.

What can the government do to facilitate the ease of doing business here?
Several bottlenecks in Brazil must be looked at. We have to simplify our labour laws and tax structure, which is very complicated. These are the two main issues, but there should also be less red tape in general; for example, Customs procedures are very complicated in Brazil. Certain areas need attention, especially to develop a clever industrial policy for local content and establish productivity goals for the local industry.
The Chinese offer things more cheaply, but they operate in a completely different environment. It is very complicated to try to compare costs.

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