Oil and Gas in the Capitals

	Vol. 230 No. 2
DAYSE ABRANTES, CONTRIBUTING EDITOR, LATIN AMERICA

Turning crisis into opportunity in Brazil

“Problems are only opportunities in work clothes.” — Henry J. Kaiser

When Petrobras released in January its ambitious $174.4 billion 2009–2013 investment plan, CEO Jose Sergio Gabrielli was also echoing Finance Minister Guido Mantega’s hopes for Brazil’s GDP to expand by 4% in 2009.

The IMF recently lowered its Brazil GDP growth estimate to 1.8% from 2.4%, while the Institute of International Financing says it will not surpass 0.8%.

With a 55% increase compared with Petrobras’ 2008–2012 plan, the new one was delayed twice since October due to uncertainties sparked by tight credit markets. And it was announced along with statements by Energy Minister Edison Lobão that the UAE, Japan, the US and China have offered to fund production from Brazil’s potentially huge pre-salt offshore oil and gas fields. (China alone initially offered a loan of $10 billion.)

For most analysts, the announcement has a major political component, with Petrobras representing the Brazilian government’s upbeat mood against worldwide recessive momentum.

In reaction to Gabrielli’s statement in London, on Feb. 9, that investments could be slashed if needed, Brazil’s Chief of Staff Dilma Rousseff, who is also chairman of Petrobras’ board of directors, stressed the importance of Petrobras investments in tandem with the government’s accelerated development plan, called PAC.

“Both plans are crucial to maintain the country’s economic activity,” said Rousseff, a presidential candidate for the ruling Workers’ Party (PT). PAC includes $61 billion in infrastructure projects to 2010, an election year.

Rousseff called for an alliance to strengthen the country’s economy, but critics argue that Brazil lost the chance to finance pre-salt exploration when the pre-salt blocks were excluded from the 9th round of auctions.

For them, Petrobras will only produce 20,000 bpd of the light pre-salt oil if the Brent price stabilizes at $50/bbl, and it must reach $100/bbl to allow 100,000-bpd production. Petrobras is working with an average price of $37/bbl in 2009, $40 in 2010 and $45 in 2011.

Although President Luiz Inácio Lula da Silva tried to deny it at first, the global crisis has affected Brazil. For example, in January the National Confederation of Industries (CNI) consulted 1,407 companies and registered the lowest rate of confidence in the country’s economy (47.4%) since 1999. The most pessimistic sectors were automotive, paper and cellulose.

However, government officials and Petrobras directors have launched a campaign to convince the industry’s supply chain that Brazil is poised to profit from the unique opportunity of having the technological capability to exploit deepwater resources.

On Feb. 11, Gabrielli showed a light at the end of a tunnel when he presented the company’s huge shopping list to executives from the Rio de Janeiro Federation of Industries.

“Petrobras has crude reserves to develop and identified resources that can turn into reserves and support a production growth rate,” he said, adding that the country will spend $92 billion on E&P, 49% of which will be directed to develop production toward a goal of 2.68 million bpd by 2013.

To 2013, Petrobras will invest $28 billion in Tupi, Iara and Guara pre-salt fields in the Santos Basin and at the Whale Park pre-salt area in the Campos Basin to reach 219,000-bpd production along with partners. By 2020, Petrobras and partners plan to produce 1.85 million bpd of pre-salt oil, which was the country’s total average oil production during 2008.

Part of the money will come from anticipated sales of oil, part from the company and, for the first time since the ’90s, Petrobras secured financing from Brazilian state banks like the National Development Bank (BNDES), Caixa Econômica Federal and Banco do Brasil.

While not being able to maintain exploration and expansion investments with its own cash, one of the targets of this strategic plan is to rank Petrobras among the five largest energy companies of the world by 2020, said Gabrielli.

Petrobras will invest some $46.9 billion in four new refineries, a fertilizer plant, two more LNG terminals and a petrochemical complex. A new holding company called Comperj Participações with five new subsidiaries was founded on Feb. 5 to open the way for private-sector partnerships in the $8.5 billion petrochemical complex project under construction in Rio.

Before that, Petrobras had four subsidiaries: Petrobras Distribuidora (BR), Transpetro, Petroquisa and Petrobras Biocombustivel.

Of the $28.6 billion earmarked for 2009 to reach an average 2.05 million bpd of oil and 463,000 boepd of gas, $10.5 billion comes from Petrobras, $11.9 billion was tapped from BNDES and the rest from capital markets, according to Almir Barbassa, Petrobras finance director.

By year-end 2009, Petrobras plans to contract 11 additional drilling rigs besides the 40 rigs now operating and will call for bids for another 6 platforms, of which two are FPSOs. Toward this end, Gabrielli said, the company is creating new contract models and a new approach to deal with the supply chain.

Although E&P Director Guilherme Estrella says that Petrobras will prioritize equipment from Brazilian sources, suppliers were warned that the company expects to obtain a cost reduction compatible with the slide in oil prices, at least 30%.

Since September, the price of rigs, cement and steel has fallen internationally. On Feb. 3, Transpetro—Petrobras’ transport subsidiary—announced the purchase of 18,000 tons of steel from China for $600 per ton. Brazilian steel is more expensive, said Transpetro’s president, Sergio Machado, when announcing the purchase of an additional 24,000 tons from China. By the beginning of February, the subsidiary had purchased 55,000 tons of steel, only 12,000 of Brazilian origin.

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